The complicated deal for a chain that's not performing at the top of its game speaks the opportunity CArlyle and its peers see in the ascendant travel market in China.
A consortium led by Carlyle Group and company management has reached a deal to take Chinese economy hotel chain 7 Days Group Holdings Ltd private, after raising its bid by 9 percent to $688 million.
Chinese companies like 7 Days are delisting from U.S. bourses in increasing numbers as regulatory scrutiny mounts and the advantages of a U.S. listing slip away.
The consortium backing the 7 Days deal — Carlyle Group, Sequoia Capital, Actis and the co-chairmen of the company Boquan He and Nanyan Zheng — initially approached the company last September.
They have now agreed to pay $13.80 for each 7 Days American Depositary Share (ADS), up from $12.70 previously, a 30.6 percent premium over the Sep. 25 closing price, the last full trading day before the original offer was announced.
7 Days, which runs limited-service hotels under the 7 Days Inn brand across major metropolitan areas in China, had lost half its value since 2010 before receiving the go-private offer.
Almost $5 billion of private equity-backed deals to take China companies private have been agreed since late December, including the $3.7 billion leveraged buyout of display advertising firm Focus Media Holding Ltd , a target of shortseller Muddy Waters.
Private equity firms are backers on many of the bigger take-private deals, working with company management to take advantage of big discounts to peers on the Hong Kong and China stock markets.
Out of 40 announced deals since 2010, 18 are private equity backed, according to data compiled by Thomson Reuters.
Funding for buyouts of Chinese companies is done through offshore holding companies but many banks will not finance such deals due to the risk of non-payment. Limited financing has restricted deal sizes, and increases the amount of equity that private equity firms must invest.
The 7 Days buyout is backed by a leveraged loan of $120 million, or around 17 percent of the deal value, from a consortium of mainly Taiwanese banks. Typical recent leveraged buyouts in Asia feature around 50 percent in leveraged debt.
Copyright (2013) Thomson Reuters. Click for restrictions.
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