Principal Hotels has pulled out of its planned flotation because the City is tiring of the run of hotel companies coming to the stock market, writes Andrew Sangster.
John Lewis, executive chairman at Principal, said there had been a good response from City institutions during initial briefings, but the company had then been unable to achieve an acceptable price for its share placing.
“The institutions said there had been a lot of hotel stock on offer and that they had suffered with other issues,” he added. The group’s backers, led by NatWest Ventures, have decided to retain full ownership rather than sell at a low price.
Mr Lewis said more than £40m of new money would be made available by these backers to continue development of the group. “We will have the same amount of money as if we had floated. We will continue to acquire,” he added.
Analysts said they were not surprised by Principal’s decision. “For each hotel company float that comes along, the only way to sell is by pricing cheaper and cheaper,” said Jason Streets, leisure specialist at ABN Amro Hoare Govett.
Another analyst told Caterer that investors were more likely to back a company such as Stakis – which is expected to make a £200m rights issue imminently – than a comparatively unproven management such as that at Principal.
A trade sale has been ruled out as an exit route for Principal’s backers, but many in the City see such consolidation as inevitable in the medium term for the industry as a whole.
The focus for Principal would now return to its core business, Mr Lewis said. “We have spent four months on a process which has proved abortive. Everybody in the group had concentrated on this,” he admitted.
The cost of preparing for the float is understood to have approached £1m, but the company may yet try again. The general election next year, which is likely to create instability in the stock market, means a second attempt is unlikely until 1998, however.