Whether you are looking to expand your portfolio or acquire your very first hotel – it is important to ensure you are informed and prepared for the purchasing process. This article will highlight some key considerations in preparing to purchase a hotel.
Who is the Purchasing Entity?
One issue parties encounter is that they are unsure about the purchasing entity and structure in which they should use in this transaction. Buyers should obtain legal and financial advice to ensure that the appropriate structure and entities are in place when they are ready to make an offer. Consult your solicitor and accountant and put them on notice that you are in the market for purchasing a hotel and make sure that you have your advisers available when the time comes to commit to a transaction.
Is the Seller Committed to the Sale?
Another important issue for buyers is to try and secure a binding commitment from a seller, the quicker a binding commitment from a seller is achieved, the more certain the deal will be. There is often a delay between completing negotiations and executing a contract.
How Can a Buyer Secure the Purchase?
Buyers can require a seller to sign a short-form Heads of Agreement document incorporating the fundamental commercial terms that have been agreed and that pending the execution of the sale contract, the seller grants the buyer a period of exclusivity where negotiations with other prospective purchasers are suspended. Securing these sorts of commitments will assist a buyer in holding the seller to the transaction where otherwise the seller may be open to other offers. While the Heads of Agreement will not bind a seller to a contract, it can serve the purpose of holding it to promises about exclusivity.
What Assets, Liabilities and Risks Will Be Part of the Deal?
A buyer will usually engage their solicitor or accountant to undertake certain investigations or due diligence. Due diligence is of most benefit when it can be completed before the final decisions are made to proceed with a particular transaction. It may be conducted before signing the contract or alternatively the buyer may contract to buy the hotel but have the right to later terminate the contract if the results of the due diligence are unsatisfactory.
Types of investigations a buyer can carry out may relate to many of the following areas: Financial; Structural and environmental; Liquor and gaming compliance; Heritage listing; Tenure and Leases (including for bottle shops); Local authority compliance; Employees; and Claims and litigation.
Who Will Be Managing the Hotel?
The buyer will need to consider who will be the manager and nominee for the hotel and ensure those individuals are eligible based on their personal history. They will also need to (or to have completed well before settlement) all training required by the OLGR.
What Training Do You Need?
The buyer should consider what help they expect or will need from sellers or their staff to ensure a smooth takeover of operations. It is helpful for the buyer to be given access and training prior to takeover on settlement day to ensure the business can continue to trade with minimal disruption.
The purchase process does involve many more steps than these, and we strongly recommend you getting comprehensive advice across the full range of issues when looking to buy.
If you are in the market to purchase a hotel and need any assistance in managing this transaction, please give me a call on (07) 3224 0230.