BREAKINGVIEWS-Soho House throws a sedate $2.7 bln deal party

By Karen Kwok

LONDON, Aug 18 (Reuters Breakingviews) - When VIPs like Apollo Global Management APO.N and actor-turned-venture capitalist Ashton Kutcher show up, the expectation might be for the finance equivalent of a blow-out party. Soho House’s SHCO.N take-private, announced on Monday, is a little more sedate. Valuing the swanky private members’ club at $2.7 billion, including debt, the deal is led by MCR Hotels and backed by Apollo and others, including Kutcher. With insiders like Executive Chairman Ron Burkle rolling over a massive chunk of shares and a challenge from a rabble-rousing investor fizzling, though, it’s more of a quiet fix than a bold buyout.

The $9-a-share offer has been on the table since December 2024. In January, activist shareholder Dan Loeb invited gatecrashers, pushing for a “fair” sale process. Yet the stock never traded above the bid price. It makes sense: about 85% of the company is owned by insiders, leaving a thinly traded stub and discouraging rival bids. There’s little room or reason for outsiders to RSVP.

To boot, while the offer price might be well below the $14 a share at which Soho House listed in 2021, it’s an 83% premium to where the stock was before takeover talk began. Loeb is no longer resisting, telling Reuters on Monday that he supports the transaction.

Lackluster performance might seem troubling for a big, heavily indebted buyout. After all, revenue growth has slowed from 73% year-over-year in 2022 to shy of 7% in 2024. On its face, the deal’s enterprise value comes in at a hefty 20 times last year’s EBITDA.

In reality, MCR and its companions aren’t pushing the boat out quite so far. Aside from Burkle, fellow insiders and existing investor Goldman Sachs Alternatives are rolling most of their shares. That leaves a far smaller equity check to stump up alongside $845 million of fresh debt from Goldman and Apollo.

The asset manager led by Marc Rowan is setting the mood, offering $700 million in “hybrid” financing: part debt, part equity. This bucket of capital tends to target a mid-teens return, rather than the racy results of a classic private-equity raid. It’s a better fit for a transaction that seems to mostly be about nursing Soho House back to health from a public-markets hangover.

MCR Hotels, with its hospitality expertise, could help on operations. Kutcher, co-owner of a VC fund with Burkle, is essentially high-profile friends and family, filling out the guest list and maybe attracting further equity dollars. However, taking the company private doesn’t solve its growth problems, or erase the tension between expansion and exclusivity. It is still a members-only business, inking a members-only deal.

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CONTEXT NEWS

Soho House on August 18 said that it had agreed to go private in a $2.7 billion deal led by New York-based MCR Hotels.

Shareholders will receive $9 per share in cash, an 83% premium over the closing stock price on December 18, 2024, the day before Soho House announced that it had received the offer. Executive Chairman Ron Burkle and his investment firm Yucaipa will roll their controlling equity interests and retain majority control.

Actor and technology investor Ashton Kutcher will join Soho's board following the deal, and the company named hospitality veteran Neil Thomson as chief financial officer to succeed Thomas Allen, effective immediately.

Hedge fund manager Daniel Loeb, whose firm Third Point holds a stake in Soho House and had pushed for a "fair" sales process, on August 18 told Reuters he is pleased with the planned move and supports the deal.

Citi acted as financial advisor to Soho House, while Morgan Stanley advised a special committee of the board. Canaccord provided advice to MCR, while LionTree is serving as Ashton Kutcher’s advisor.