HEARTBREAK HOTEL – HOW ONE HOTEL GROUP OVERCAME DEADLOCK
Released On 15th Mar 2022
A fact of business (and life) is that peoples’ feeling towards each other change over time and whilst at the start of a business venture or relationship everyone is all smiles and hugs (well maybe not always the hugging) this can change, and stresses can fracture that relationship.
Often this is salvageable and even if the relationship isn’t the same it can still be dealt with in a professional manner. Unfortunately, sometimes it is too severe a shift and the resulting atmosphere leaves a business in jeopardy because the board, investor group or both find themselves at odds with each other over the direction and management of the business.
In the worst cases this can lead to the business being left in limbo as no decisions are made at all. That was the position which a hotel group found itself in.
Those involved had done everything you might expect to avoid such an eventuality, there were investment documents in place, a detailed shareholder agreement and a pre-agreed detailed vision of where the business was going.
The cracks begin to appear
The problems first started to materialise when initial expectations for growth were missed and there was a disagreement about what steps to take to rectify the position. It does not matter in these cases who is right or wrong (if those labels can even be said to apply), the fact of the matter was that the business was paralysed until this deadlock could be broken.
Whilst the reality was more nuanced than this, there were two factions by the time I was asked to provide some input and both factions had engaged lawyers to represent their respective interests. Thankfully both lawyers had identified that any form of legal dispute would see the value in the business diminish rapidly and to their credit identified that this might not be “one for the lawyers”. They also both recommended the business speak to me, which is always nice.
Getting back on track
I held an initial meeting with the board (which broadly reflected the investor group). It was clear that deadlock had set in and that there was not going to be any hope of overcoming the current disagreements and moving on together.
This left two options; one faction could buy out the other, or the whole business could be sold to a third party and the funds distributed.
Both sides were interested in exploring the first of these and so I embarked on a period of shuttle diplomacy where both sides considered and put forward offers to the other. Despite a couple of rounds of this it became clear to all that we were not coalescing around any sort of deal and this therefore had to be abandoned.
I brought the board back together to discuss how a sale process might work and what it might entail for the parties involved. Whilst the business was not insolvent, there was a desire on the part of some parties to use some form of insolvency process purely for the benefit they perceived in having an independent third party with executive control of the business.
The problem with this scenario was the almost certain negative impact that would have on the eventual sale price and the additional costs involved, both creating a circumstance where investors would suffer further pain than they were already feeling.
That said, the board did not feel that the process could go ahead without some outside involvement and so concluded to engage me further to work with the executive team to drive and deliver the sale.
Happily ever after?
Once engaged I helped the business agree on which professionals to instruct, assisted in negotiations with the purchaser and acted as go-between for the parties involved to ensure everyone was not only kept up to date but felt that they were actively involved.
These sort of sales are never straight forward and the position the business was in did not make it any smoother, but I am pleased to say that the sale was concluded relatively swiftly and that a good result was achieved for all concerned. Inevitably it wasn’t the outcome everyone would have wanted when initially involved, but they were able to hold their heads high as they went their separate ways.
Business interventions are usually smoother when professional advice is sought as early as possible. For more information on how Simon and the team can help, contact srowe@milstedlangdon.co.uk
