7 Days board agrees to PE-backed buyout
Chinese budget hotel chain 7 Days Group has accepted a take-private offer from its co-chairmen and three private equity investors that values the company at approximately $688 million. Two PE firms, The Carlyle Group and Sequoia Capital, were initially backing the deal but an affiliate of Actis Capital has decided to roll over its existing holding into the acquisition vehicle.
The buyer consortium, led by Boquan He and Nanyan Zheng, 7 Days' co-chairmen, will pay $13.80 per American Depository Share, a 30.6% premium to the last close prior to the submission of the offer on September 25. The initial bid was $12.70 per share.
The transaction will be financed through a combination of cash contributions from Carlyle, Sequoia, Actis and He and a $120 million loan facility provided by Cathay United Bank, Chinatrust Commercial Bank, Nomura International, Ta Chong Bank and Taipei Fubon Commercial Bank.
In 2008, Actis and Warburg Pincus invested $65 million for an undisclosed stake in 7 Days. Warburg also put in $25 million in 2006 and 2007. As of April 2012, Actis and Warburg owned 11.6% and 16% in 7 Days, respectively, while co-chairmen He and Zheng together held 32.7%. Shareholders participating in the roll over collectively own 50.16% of the company.
The transaction now proceeds to a shareholder vote, with approval required from at least two thirds of shareholders who choose to participate. This is expected to happen in the second half of 2013, after which 7 Days will be removed from NASDAQ. As it is a Cayman Islands entity, the privatization process is reasonably straightforward with none of the class-action law suits that frequently emerge in connection with US-domiciled entities.
Between April 2010 and November 2012, a total of 49 take-private transactions were announced, according to Roth Capital Partners, with 19 reaching a close, four terminated and 26 in process. The last 12 months have seen significant activity: 10 deals were underway at the start of 2012, rising to 20 by the end of it.
Fushi Copperweld's successful delisting in late December took the number of private equity-backed closes to five and there has been one termination. AVCJ has records of 12 deals still in process, eight of which were announced in the second half of 2012. Five deals - Zhongpin, ShangPharma, Focus Media, 3SBio and now 7 Days - have received board approval since last October.
Carlyle is also participating in the Focus Media transaction.
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