> How To Price An Investment Target?

How To Price An Investment Target?

Kenya’s government has been brought to a standstill and finance minister Amos Kimunya has been forced to resign at news that Nairobi’s showpiece Grand Regency hotel was secretly sold to the Libyan Arab Africa Investment Company at a vastly undervalued price. The hotel was sold without negotiation for an official figure of KSh 2.9 billion – a fraction of the KSh 6 billion top-price estimate being bandied about in the media, but the price has caused a storm of debate as to whether the sale price was fair and reasonable or a huge undervaluing of the property.

The scandal highlights how key an issue valuation is in hotel investment and ownership – how does one ensure an accurate price for the investment when one wants to buy, and what constitutes a fair valuation? What influences hotel valuation? There are many factors to take into account when valuing hotels from their capitalization rate and their room rates, as well as on both their historical earnings and on their current and future earnings.

Other factors such as the health of the hospitality industry and political and economic prospects impact values. The bidding process is also crucial – the Grand Regency transaction was particularly hit by accusations of a lack of transparent bidding that could have pushed up the value of the hotel.

This article should outline, using case studies to back up each point, as far as possible, what hotel investors should be aware of when buying into or preparing to sell a hotel property. You could start by discussing Africa’s hotel valuation / sale history? Explain some successful sales or nightmare scenarios for the investors that have hit headlines – like the Regency. What has actually happened there – can you give some insight?

What makes a successful valuation, and how advanced is the industry in Africa? What are the key factors to be noted in this equation? What affects valuations? Who should investors go to for this?

You might want to add in something about who hotel buyers and sellers tend to be in Africa – are they governments, local investors, international groups? Where are these trends headed – towards more local investment, or something else? What’s directing the market?

You might also want to talk about the process of pricing and negotiating a sale – like, what makes an ideal buyer or seller, and what does a viable and mutually profitable deal need to have as its elements?

Offer your experience – where have you seen successes happen and why? What tips would you offer for investors looking for valuation?

This gives a public view on the Regency scandal – you maybe know more about it than this? Do you agree with the writer?

Trevor Ward

W Hospitality Group, Lagos



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