Hotel sales structured as corporate transactions

Hotel sales as either corporate transactions or straightforward asset sales require considerable planning and resources to execute. The most important part of any hotel deal is preparation: some hotel deals can get delayed or collapse entirely well into the process, resulting in disappointment for all parties.

With this in mind, it is important to take the time in advance to consider the legal, financial and tax consequences in structuring a hotel deal either as a share sale or asset sale. Crowe can provide specialist advice on the implications of both structures, which will assist in making this decision.

Tax rationale for buyers and sellers

There are tax implications for both buyers and sellers and the tax rationale for each party can vary based on several factors. There are several matters to consider, including:

• Structure
  • What is the proposed corporate structure?
  • Is there a PropCo (property company) or OpCo (operating company)?
• Taxation
  • Stamp duty – 7.5% for an asset sale or 1% for a share sale
  • Capital gains tax
  • Depreciation
  • Losses carried forward
  • Interest deductibility
• Risk: Buying shares in an existing company involves legacy risk and liabilities
• TUPE – if moving employment to a new company (or staying in an existing company in the case of a share sale)
• Entrepreneurial relief
• Retirement relief
• Crystallisation: Can you avoid crystalising losses by creating a holding company?

Engaging Crowe as your specialist tax, audit and advisory professionals at an early stage ensures that the optimal deal structure and outcome is achieved.

Due diligence considerations for buyer and seller

Selling a hotel under either a share or asset sale requires a comprehensive due diligence process for both buyers and sellers. This includes detailed examination of the hotel's financial, operational, legal and regulatory aspects to mitigate risks and to ensure a smooth transaction, protecting the interests of both parties.

Some factors for buyers and sellers to consider include:

• Facilities: Observations from the site inspection, including commentary on the facilities, physical condition, capex requirements and immediate surrounding area.
• Location: Location SWOT analysis, commenting on accessibility and proximity to major demand generators.
• Competitive supply: Identifying primary competitive supply and potential future supply.
• Positioning: Critical assessment of the hotel’s current market positioning.
• Demand: Analysis of the historic demand drivers for the hotel (segmentation mix/geographic mix if available).
• Management structure: Critical assessment of the management structure for the business.
• Contracts: Review of contracts to be assumed on acquisition of the hotel, including staff.
• Financial performance: Review of the historic financial performance, analysis of KPIs (ADR, Occupancy, RevPAR, weddings, payroll), comparison of performance with the competitive set.
• Outlook: Preparation of financial projections for the five years post-acquisition.

How we can help

Crowe is Ireland's leading consultancy practice serving the hotel, tourism and leisure industry. We have an unmatched depth of knowledge of the sector. We regularly assist in the sale, acquisition and development of hotel, tourism and leisure businesses – acting for owners, developers, financial institutions and industry stakeholders. Our dedicated Hotel, Tourism & Leisure division (Horwath HTL) is the oldest and largest hotel and tourism consultancy practice in the world and is a member of UNWTO. Since 1995 Crowe has produced the Ireland Annual Hotel Industry Survey, which serves as a benchmarking tool for the sector and provides analysis by region, classification and hotel size. We work closely with our international HTL colleagues to bring you solutions through a combination of international experience and expert local knowledge.

Crowe has extensive buy side and sell side experience and we regularly support investors and funders in completing due diligence, appraisals and valuations for hotel acquisitions. To find out more about how we can help you make smart decisions today that create lasting value for your business, contact a member of our HTL team.