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Exits, Private Equity

China Lodging Group To Acquire Carlyle-Backed Orange Crystal For $531M

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The interior of a Beijing Crystal Orange hotel priced at RMB700 to RMB1,000 per night

Chinese hotel operator China Lodging Group Ltd. has agreed to acquire smaller rival Crystal Orange Hotels Group for RMB3.65 billion (US$531 million) from an investor group led by U.S. private equity giant the Carlyle Group, in a move that further pushes the country’s hospitality sectors to consolidate.

A share purchase agreement was signed last night between a unit of China Lodging and Crystal Orange, according to a disclosure filing submitted by NASDAQ-listed China Lodging.

“Global consolidation of hotel operators is continuing,” said Zhang Min, chief executive officer of China Lodging. “Crystal Orange is loved by the young and fashion crowd, attracting a complementary segment of the population to Huazhu’s existing members. This will help strengthen our leading position in the hotel sector and provide more choices for our 78 million members.”

Founded in 2006, Beijing-based Crystal Orange operates over 200 hotels, including those under construction, in dozens of major cities in China. The company’s three brands target middle to high-end consumers, with the flagship Orange Crystal brand termed as an alternative five-star hotel priced at around one third of those charged by International five-star brands such as the Four Seasons.

In 2012, Carlyle invested over US$10 million in Crystal Orange for an undisclosed amount. Other investors including DCM and a number of individual investors including James Jianzhang Liang, co-founder of Chinese online travel giant Ctrip, also invested in the company but no financial details were available, according to an article published by Crystal Orange’s founder Wu Hai. At that time, Crystal Orange had only 22 hotels in half a dozen cities.

“Crystal Orange is a unique brand in that its designs are very special with strong individual characteristics. Combining with Huazhou will help accelerate our growth into a leading boutique hotel company in China with their support on development, IT and membership,” said Wu Hai, Crystal Orange’s founder.

In the article, Wu also described his emotions during the sale process. “When Xiang-Dong Yang (managing director and chairman of Carlyle Asia) told me they want to exit, I knew I must respect the will of my investors because I would not have had this ‘baby’ without them. So I agreed as I need to do what a ‘surrogate mother’ does…Yang respected my view to keep ‘my baby’ with me and excluded strategic investors including China Lodging initially, until one day I was told China Lodging would be offering a much higher price (than anyone else). I was struggling, but I knew I was just a ‘surrogate mother’ and I had responsibilities to the baby’s real mother, my investors.”

Wu has been known among Chinese venture and start-up communities for his outspokenness. In a previous article, he described entrepreneurs as prostitutes and venture capital firms as those who frequent brothels.

China Lodging, operating under Huazhu Hotels Group Ltd., has 3,269 hotels with 331,347 rooms in 367 cities, with a primary focus on economy and mid-scale hotel segments. Its brands include Hi Inn, HanTing Hotel, Elan Hotel, JI Hotel, Starway Hotel, Joya Hotel, and Manxin Hotels & Resorts.

The Company also has the rights as master franchisee for Mercure, Ibis and Ibis Styles, and co-development rights for Grand Mercure and Novotel, in the greater China region.

In 2015, Shanghai-based hotel group Jin Jiang International Holdings Co., Ltd. planned to acquire France-based Groupe du Louvre and its 100% indirect subsidiary Louvre Hotels Group from Starwood Capital Group. BTG Hotels Group, a Shanghai-listed Chinese state-owned firm, agreed to acquire NASDAQ-listed domestic rival, Homeinns Hotel Group, for around RMB11 billion (US$1.7 billion).

CMN Special Situations Forum China 2017 Black 468×60
 






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