It's tough going but hotels still make it
Hindsight is easy - and generally useless. It's foresight that's clever; it's the attribute that all generals, politicians and business operators need if they are to be successful.
Guy Hands seemed to have it in abundance when he led Japanese investment bank Nomura to the Compass offices in May 2001 and slapped £1.9b on the table for the Le Méridien hotel brand. "Thanks very much," said Compass boss Francis Mackay, "that'll do very nicely. I'm getting out of hotels." (Now, there's a man with foresight.)
Hands thought he was being canny. He'd sold 4,000 Enterprise pubs for £2b, and so hotels looked like a sound investment. And why not? The market was on a roll, occupancies and room rates in London were sky-high, and tourism was growing worldwide by 6% year-on-year. Hands had a good financial track record and he brought gravitas to a hospitality industry that was crying out to be taken seriously in the City. It looked good all round.
Unfortunately, events conspired against Hands and Le M‚ridien. Foot-and-mouth disease, Ground Zero, war in Iraq and the Sars virus turned hospitality into a disaster movie, and hit the hotel group for six. OK, everyone else suffered as well, but what chance do you have when you've just paid top whack for properties with high rent and suddenly there's no income? It's like fixing up a mortgage a month before taking a pay cut.
Of course, there will be those who say that the deal was flawed from the start, that personal ego played too big a part in the negotiations, and that the purchase price and the subsequent leaseback rents were far too high.
But that's easy to say now. At the time, we all gasped at the high-rolling figures. We got a thrill out of the "mega deal". We wished we had Hands's business acumen and audacity, and it made most of us proud to be associated with stories that were making the front pages of the financial press. We loved every moment of it, and it's easy to forget that now.
It's all crumbling to dust, but there is one important point to remember - hotels can still be sound investments and, very soon, someone is going to have the foresight to step in and make a killing on the very desirable properties that fall out of the collapse of Le Méridien. Whoever they are, it'll be a wise move - I just hope they have better luck than the previous owner(s).
Forbes Mutch, Editor, Caterer & Hotelkeeper
Mashterclass
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