A little help for a national asset
It may sound like a cliché to describe the fortunes of Stakis over the past five years as a rags- to-riches story, but that is exactly what has happened. In 1990 and 1991, the company was described as "sickly", "ailing" and "troubled", but by 1994 the tone had changed to "buoyant", "profitable" and "successful".
Back in 1990, debt at Stakis stemmed from its strategy of an extensive nursing home and hotel development programme. But sweeping changes to the company's management brought a change in tack. Ancillary businesses, such as restaurants, pubs and finally nursing homes, were sold off and the company began to concentrate on the core businesses of hotels and casinos.
By July 1993, the performance of the hotels division had been so significantly improved, Stakis was able to go on a spending spree to bolster the business. Acquisitions at the group have become a commonplace activity over the past few years, allowing it to grow to its current size of 42 hotels throughout the UK.
But, if you think the company was just snapping up any bargain that crossed its path, you would be mistaken. A finely-tuned acquisition policy has been developed at Stakis to ensure it gets the properties it wants, at the price it wants them, with no whiteelephants.
"I co-ordinate the acquisition process and all acquisitions are funnelled through me. I keep the records, decide what to pursue, agents send me the details of properties and everything concerning an acquisition is referred to me," says director of business development, Ken Tinkler.
Although Tinkler is an accountant by training and had no experience of hotel acquisition until two years ago, he has learnt quickly. He realises there is no room for any confusion regarding a purchase.
He explains that Stakis is largely reactive as far as purchasing properties goes - it waits to see what is up for sale rather than approaching hotels it fancies directly. "We get sent details by a lot of agents, large and small, architects, surveyors and so on. We have about one property a day referred to us, although we would probably look at only one a month," says Tinkler.
Tinkler says the type of hotels Stakis is looking for are four-star properties, with a minimum of 100 bedrooms or at least the potential to grow to more than 100 bedrooms, with conference facilities. They must also be geared to the business market and have good leisure facilities. Details of country house properties or standard three-star hotels get thrown away.
To date, Stakis has refused to pay any sort of finder's fee to an agent because, it believes, it should be up to the vendor to pay the agent. However, this policy now appears to be softening. If any of the agents it trusts and uses regularly come up with an attractive property that is not on the market, Stakis might be prepared to pay a small fee, about 0.5%. "This hasn't happened yet but we are considering it for a number of deals," reveals Tinkler.
He thinks there are basically three sorts of property the group has acquired over the past two years. The first is the "red-hot" property; one that immediately looks like a good fit from the agent's details. London's Coburg Hotel is in this category.
The second is the "likely/probable" property, which seems to be worth a visit from its details and might turn out to be an attractive purchase. The Westpoint Hotel in East Kilbride, near Glasgow, is one such property.
Finally, there is the "maybe but unlikely" property. This does not appear a good fit from the details but gets a look over anyway, and occasionally turns out to be right. The Moorside Hotel in Stockport, Greater Manchester, fits into this category.
"If a hotel seems to fit all our criteria from the details in terms of location, bedrooms, size, facilities, state of repair and opportunities for expansion - myself or the operations director, Stephen Elliott, would visit straight away," says Tinkler. "If we think it is a maybe we would get the local area manager to visit to see what they think and calculate what room rate and occupancy they think we could get from it. An area manager would probably look at a property every six weeks."
The more unlikely properties are referred to a meeting of the hotel executive committee, made up of area directors, the marketing director, purchasing director, food and beverage director and group management accountant, which meets monthly. They would usually look through the details of about 10 properties per meeting and occasionally refer one back to Tinkler for investigation.
Whoever visits a property is looking for the same things and from the first visit calculates occupancy and room rate forecasts for the next four years.
"At this stage, either the owner or agent will provide the management accounts and we will produce a feasibility study, forecasting profits for the next 10 years and our internal rate of return. The minimum internal rate of return we would accept is 20%, sometimes more if we think the property is a bit risky," says Tinkler.
Once Stakis has these figures, it runs a number of checks on them and produces figures for profit per bedroom - all these forecasts and calculations will be done within a day of visiting the hotel. "At that stage we would have an indicative price we would pay. We compare that with the asking price and if it is the right sort of figure, we'll take things further. If there is a big gap we'll drop it as there is no point in going further," he explains.
If there is common ground, Tinkler will rapidly arrange for David Michels, chief executive, to go to see the property. Michels conducts the final stage of the negotiations process. "We go along with a figure in mind and will pretty much stick to it, with only a little flexibility," says Tinkler.
Once the figure is set, the company brings in its lawyers and surveyors. It uses solicitors Lovell, White, Durrant to draw up contracts, but is currently choosing surveyors after its regular company went into receivership. Luckily, only once in the past two years has Stakis had to call off a deal because of a nasty surprise spotted by the surveyors.
The company has a safety net to check its own calculations: a report by BDO Hospitality Consulting on the prospects of the hotel being acquired.
Stakis management accountants will spend about two days poring over the hotel's accounts to check they have been given correct information. And the board will then rubber stamp the acquisition.
"Takeover would then be very quick. We have a team of 10 who will go in and blitz the hotel. On day one we'll have the Stakis flag up, all staff in our uniforms, our name over the door, the hotel on our central reservation system and our own accounting systems in place," says Tinkler.
News of the latest acquisition activity was leaked in October, when Stakis admitted it was at advanced stages with three new projects: a new-build 180-bedroom hotel in Islington, London, costing £12m; a new-build site in Templepatrick, County Antrim, for a 100-bedroom hotel; and the purchase of the 52-bedroom Clarendon Hotel in Edinburgh, which will be turned into an annexe for Stakis's 136-bedroom Grosvenor Hotel.
"Our acquisition activity is still as strong as ever. The only slight change in emphasis is that we are now prepared to consider building more than we were before," Tinkler says.
Despite the slick policy, Tinkler admits there have been times when he was forced to say "damn, we blew it". Stakis would have loved Windmill Park hotel near Stratford-on-Avon, for example, but Marston Hotels got there first.
"We do miss deals and are sometimes disappointed, but we won't get into auctions; we stick very much to our calculations on what a property is worth. We were interested in Copthorne Hotels but CDL was prepared to pay much more than us so we pulled out early on."
