By Matthew Hernon, Account Manager at Dynamis looking after Business Transfer Agents and Franchises across BusinessesForSale.com and FranchiseSales.com.
Selling a hotel may seem a daunting prospect, and there is no doubt it can be complex. But if you want things to go smoothly, the best solution is to plan your sale as early as possible. In fact, some leisure industry experts believe that, in a perfect world, your planning for an eventual sale should begin even before you make your initial purchase. Nevertheless, there are some particular pitfalls and challenges which could relate to any hotel sale. So, let’s have a look at these issues and some possible solutions.
Valuing the business
You should never consider engaging anyone other than a specialist valuer who is familiar with the hotel sector. Not only will this ensure the ‘industry standard’ valuation method is applied – which will probably be some multiple of your hotel profit – it will also give you priceless information about other aspects of the sale. These could include information to help inform the timing of your sale, as well as tips on how to maximise the value of your business before you move to list the property.
It is even possible you may learn of some potential alternative use of the premises, such as conversion to a care home etc, which may potentially increase its sale value beyond normal expectations. So this is no time to entrust the challenge of business valuation matters to a generalist.
For any proposed sale to go well, your hotel business must remain fully operational during any period leading up to a sale. But staff, regular customers and contracted suppliers all tend to worry the moment they hear that a business is about to be sold. And it usually makes matters a lot worse if they only discover the news when it leaks out second hand. So the challenge is: how to publicise the sale without introducing an air of uncertainty which may affect staffing levels, future guest bookings and more.
The solution to this conundrum will depend to some extent on the nature of your plans, but certain measures may help to avoid, or at least limit, any potentially damaging rumours. First of all, you should appoint an experienced business broker to handle the sale. If you go for someone who specialises in hotels and leisure properties, their advice about handling this situation will prove invaluable.
Precisely how you approach the matter will depend on the detail – for example, on whether you wish to sell locally or anticipate selling to an international concern. Whatever your strategy, you maximise your chances of maintaining confidence if the various stakeholders hear the news direct from you. In addition, certain other measures, such as you agreeing to stay on for a fixed period after the sale, may serve to remove the threat of any particularly toxic outcomes once the news breaks.
Appointing an agent or business broker
As mentioned above, you should go for an intermediary who is a sector specialist. This is undoubtedly the best way to meet the challenge of selling your hotel as soon as possible and at the best price. If you plan to sell locally, then you should appoint on a local or regional basis, but if you clearly feel there are reasons to market your hotel to international buyers, then you should appoint a national or international agency who will advise on an appropriate strategy and have access to the type of contacts you will require.
Though it may seem practical to market your business far and wide, it’s rarely a good idea to appoint more than one intermediary. In fact a top class operator will usually insist on a sole agency deal in the first place. Joint agency arrangements can be subject to all kinds of misplaced priorities and misunderstandings. Worst of all, there is no one entity in overall control.
Finding a credible buyer
One vital task your broker/agent will perform is to undertake the challenge of selecting suitable buyers with a strong interest who can also afford the purchase price. This ability to filter and ‘pre-qualify’ interested buyers avoids the real risk of deals falling through and is the best way to ensure the eventual buyer who emerges from this process will be able to move on to negotiate a deal.
Negotiating a good price
One of the key challenges the buyer and seller can face is a disagreement on the final sale price. And from the seller’s point of view, it is vital that you are able to justify your asking price. The solution, of course, is to ensure you have a professional valuation (see above) to confirm the worth of your hotel. That document is a great way to clarify precisely why you have advertised at that price.