Soho House ‘close to reaching a $1.8bn deal to take it private

Private members' club Soho House is reportedly nearing a $1.8 billion take-private deal led by MCR Hotels, significantly below its $2.8 billion valuation soon after listing in 2021. The transaction, which involves MCR Hotels acquiring approximately 15% of publicly traded shares at about $9 per share, aims to delist the company after a challenging four years on the New York Stock Exchange. This move follows cumulative losses of $739 million since its IPO and pressure from activist investors like Third Point, despite recent quarterly profitability.

Analysis

Soho House & Co (SHCO) is reportedly nearing a take-private transaction led by MCR Hotels at a valuation of approximately $1.8 billion. This valuation represents a significant discount of roughly 36% from the $2.8 billion valuation achieved shortly after its 2021 IPO, underscoring the company's challenging performance in the public markets. The stock's decline from over $14 in August 2021 to $7.64 is underpinned by cumulative losses of $739 million since listing, driven by an expensive global expansion strategy. However, the company has demonstrated a recent operational improvement by posting a net profit in its last three consecutive quarters. The move to go private appears to be a strategic response to both these financial struggles and significant external pressure, including a push for a competitive bidding process from activist investor Third Point and public concerns from short-seller GlassHouse regarding its accounting. The proposed deal, at approximately $9 per share for the publicly traded float, would provide a new strategic partner in MCR Hotels, a major US hotel operator, potentially allowing management to focus on balancing growth with brand exclusivity away from the scrutiny of quarterly public reporting.

Key Decisions for Investors

• Given the reported offer price of approximately $9 per share against a recent closing price of $7.64, investors could consider the potential arbitrage spread, while weighing the risk that the deal may not be finalized.
• Long-term investors should evaluate if the $9 take-private price adequately reflects the company's value, especially considering its recent three-quarter profitability trend and the potential for a higher competing bid as previously urged by activist investors.
• Monitor for any announcements of a competing offer, as activist involvement from funds like Third Point suggests there was a push for a more competitive sale process, which could serve as a catalyst for a higher take-out valuation.
• Investors in the broader travel and leisure sector should assess the competitive landscape shift, as a newly private Soho House backed by MCR Hotels may pursue a more aggressive and focused long-term growth strategy without public market constraints.