Soho House Considers Going Private as It Faces Investor Scrutiny

Soho House, owner of a network of members’ clubs, revealed Friday that its board had formed a committee to “evaluate certain strategic transactions, some of which may result in the Company becoming a private company.”

Soho House said that, in the fall of 2023, the board had created a committee to assess if the company’s strategy should change and has since engaged legal and financial advisors. The board owns 74% of the company’s shares outstanding.

Soho House was blasted Wednesday in a report by a short-seller, GlassHouse Research. The report claimed the owner of membership clubs and hotels such as The Ned London didn’t have a plausible plan to reduce its debt and become reliably profitable.

The report said Soho House is “a company with a broken business model and terrible accounting” whose “persistent lack of profits and rising debt levels” puts it in a “precarious position where they will need to continue to dump shares on investors as time goes on.”

Soho House on Friday said it would buy shares. It okayed a new $50 million share repurchase authorization. It also said that, as of the last reported quarter-end, October 1, 2023, it had $163 million of cash on hand and an undrawn revolving credit facility of about $90 million.

The company is due to report quarterly earnings in March.

Key critiques from the GlassHouse Research report:

• “When the company went public in 2021, it targeted opening 85 houses by the end of 2027. Since then, the company’s management has lowered its goals for growth to “five to seven” new houses a year. “In more recent calls, it does not disclose new house targets at all. Furthermore, SHCO has shuttered new membership in many of its key cities as the company deals with overcrowding.”

• Total revenue per house (which includes membership and in-house revenue) came in at $20 million in the most recent filing. However, this figure is not much higher than the reported numbers in 2019 and 2018. This leads us to believe there is a hard limit on how much the company can charge its members before they reduce spending in other areas like in-house charges.

• As the brand extends its reach into less affluent cities, the question of how much revenue per house it can realistically generate becomes increasingly pertinent.

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