STOCKHOLM—Scandic Hotels Group has agreed to buy the hotel assets and operations of privately held Finnish group Restel for €114.5 million ($127.6 million) on a cash and debt-free basis, according to a news release from the Swedish company.
Speaking with Hotel News Now, Scandic President and CEO Frank Fiskers, who is to retire on 31 July, said he always had two deals in mind during his 10 years leading the company.
The first, he said, was the February 2014 acquisition of Norway’s Rica Hotels, which added 72 properties to Scandic’s portfolio, 65 of those being in Norway.
The second deal, Fiskers said, was the acquisition of Restel.
“Rica was a very successful integration—commercially, financially and in terms of customer satisfaction—and now with Restel, I see the same advantages. It is very pleasing, and we are very excited,” Fiskers said.
Whereas the Rica deal made Scandic the largest hotel player in Norway, the Restel agreement will do the same for the company in Finland, he said.
The deal is expected to close by the end of the year. The Restel deal would add approximately 7,600 rooms in 43 hotels, all in Finland, to Scandic’s current 45,000 rooms.
“We will go from having 28 properties in Finland to having over 75 hotels, and we can now offer customers the best network and the best contracts. As you know, the hotel business is a scalable business, and we see excellent synergies that we can take out and improvements we can apply,” Fiskers said. He added that he is also excited to allow Restel investors and employees the opportunity of being part of an international group.
Fiskers said the majority of the assets operate under the Cumulus brand under long-term lease agreements, but seven are operated under franchise agreements with Intercontinental Hotels Group. The Cumulus properties eventually will be incorporated into the Scandic hotels, with Restel remaining the landlord of four of them.
“The deal strengthens our position in Helsinki, where we always had good strength. Across Finland, we will have 15 new markets, including some leisure destinations. Finland has seen growth in international leisure, especially with Americans and Asians, who first come to Helsinki but then go outside, to the north and Lapland,” he said.
Fiskers expressed satisfaction about getting the ink dry on the deal before he retires.
“I am proud to leave behind a very strong Scandic, the most powerful hotel group in our markets,” he said.
The release stated that “on a pro forma basis, as if the acquisition would have been performed January 1, 2016, the acquired operations might have contributed net sales of €203.4 million ($226.69 million) in 2016 and adjusted (earnings before interest, tax, depreciation and amortization) of €13.7 million ($15.27 million). … Overall, Scandic estimates that over time, the acquired operations have the potential to generate an adjusted EBITDA margin higher than the group’s long-term financial target of 11%.”
Scandic plans on spending some capital expenditure on the new portfolio, with a value of approximately 5% of sales in the coming years, as well as a further €10 million ($11.14 million) approximately in 2018.
Win-win-win deal
The deal has pleased owners, as well as the seller.
Markku Jääskeläinen, investment director of asset management at CapMan Group, which owns 24 Restel hotels and two Scandic hotels with IHG franchise agreements (the Crowne Plaza Helsinki and the Holiday Inn Helsinki Vantaa Airport), attended the news conference announcing the deal.
“Absolutely, I am pleased. We have a better tenant in place now. Restel has a different style as an operator, but Scandic is the most efficient hotel operator in the region,” Jääskeläinen said. He added that CapMan started a hotel ownership fund in January 2008 with a buy of 39 assets across several hotel firms, including Restel and Scandic.
Mikael Backman, president and CEO of Restel, told Hotel News Now that until the deal is completed, the two companies will continue as they are, but afterwards Restel would concentrate on its restaurant business.
“Our mother company has four hotels, which we will rent to Scandic, but the name Restel comes from a combination of the words restaurants and hotels, so increasingly we will focus on restaurants,” Backman said, adding that his company owns approximately 250 restaurants.
“We sold the company Restel Hotels, all of its assets, to Scandic, which is a good owner, and I feel the brand will develop as (Rica) did in Norway. The market is good, and it is nice to have it all go to a good family. We are happy with the new buyer,” Backman said.
Christian Kielgast, partner and senior consultant at Nordic Hotel Consulting, said the deal highlights Scandic’s strong growth ambition and desire to cement its leading position in the Nordics.
“It also highlights Scandic’s strong stock performance and hence capacity to complete large mergers and acquisitions deals,” he said.
He added that despite this being an intra-Nordic arrangement, it shows there is space in the region to grow via acquisitions, while underlining renewed optimism in the Finnish hotel market.
Kielgast said a Nordic player such as Scandic would always be the likely best bet to underwrite greater value potential.
“The buyer would likely always have been a Nordic player. … The lease model in the Nordics makes it less interesting for international operators and capital,” he said.
In a Hotel News Now video interview, recorded on 31 May and publishing Friday at HNN, Fiskers talked about Scandic’s transition in the last 18 months from a private company into a public one, during which its strategy did not change.
“We have had a strategy of Nordic expansion; we have had a strategy of German expansion,” Fiskers told HNN.