Founded on the belief that, in order to run a hotel successfully, the buildings and business assets must be owned by the same entity, SomnOO has regularly partnered with 123 Investment Managers to acquire its portfolio. In just over ten years, the company has completed more than 60 transactions and now has a turnover in excess of €100 million.
SomnOO is the name of the company founded in 2014 by Christian Rousseau and Lars Backhaus, two specialists in the hotel market. The former gained his experience at the Accor group, while the latter worked at Blackstone Real Estate Hotels France, Accor, and Louvre Hotels Group.
They founded SomnOO based on the observation that buildings and operations must be owned by the same operator to ensure the successful development of hotels over time. “From our mutual experiences, we have found that it is difficult for an operator and a hotel building owner to coexist in the long term,” says Lars Backhaus. "This situation creates, at some point, a misalignment of interests in value creation. While it makes financial sense to remove the buildings from the balance sheet, in the long term, this situation causes real dysfunction in the life cycle of a hotel. For example, it is difficult to find the ideal timing for a renovation that suits both parties. For the owner of the buildings or operations, it depends on their investment horizon or financial capabilities; the two parties do not necessarily have the same pace. By being both owner and operator, you also save time in decision-making."
The hotel market in Europe was highly fragmented at the time, unlike in the United States, with many franchisees. Most of these franchises were launched in the 1970s and 1980s, and many were in the process of being transferred. At the same time, many hotels were owned and managed by investment funds that wanted to sell them to meet their liquidity needs. The two partners positioned themselves on these two pipelines of operations.
To carry out their venture, they needed capital. So, in 2016, they turned to bank loans and private equity funds for support. They met with the teams at 123 IM, including Pierre Dupuy-Chaignaud. Dupuy-Chaignaud, associate director and member of the executive board at 123 IM, explains: "We supported them in their first acquisitions, first a Première Classe hotel in Annecy, then three others in eastern France. We thought we would reach around 15 transactions in three to four years. In the end, that figure was reached in just one year. Three years later, we had completed around 30 transactions. We contributed our knowledge, lawyers, and other advisors, as well as our expertise in build-up transactions and debt structuring. Our role as an investor is to support entrepreneurs who know how to run their business and carry out a project, but who often lack the ability to raise money, negotiate a price, optimize debt, write a memo and a business plan, while challenging them at the same time."
With 123 IM, the framework for each transaction is established from the outset: the fund exit date and terms are known in advance. "We are not in a situation where the company will find itself facing a wall of debt in five years' time. Here, the planned takeover of each hotel with a refinancing plan is scheduled," says Pierre Dupuy-Chaignaud. In each transaction, 123 IM is the "ultra-majority" shareholder in phase 1, then SomnOO becomes the owner in phase 2.
The first settlements were made in 2021, enabling 123 IM to make its first distributions to its investors. The investment cycle is generally five years, but can be up to seven years. Over the years, the management company chaired by Xavier Anthonioz has invested through various structures and investment vehicles: FIPs, club deals, institutional funds, and thematic funds dedicated to tourism.
"With 123 IM, we have always sought to adapt to each other's needs," says Lars Backhaus. "This flexibility is greatly appreciated. The simplicity of the mechanism we have put in place with them is also a strength of our partnership: we know in advance how liquidity will be created, and exits are facilitated without lengthy discussions. However, we are both free to collaborate with other structures, so everyone understands their responsibilities and a climate of trust is established."
Over the past eleven years, SomnOO has acquired sixty-five hotels, forty-eight of which were with 123 IM. The company adopts a disciplined purchasing methodology. It is based primarily on a remote approach—location, balance sheet analysis, customer reviews, growth area, etc.—which leads to an initial estimate. If this is satisfactory, its teams visit the site to validate the investment thesis. If it is validated, SomnOO enters into exclusivity and conducts audits. "Being rational and industrialized in our investment process is fundamental to making the right decisions and not wasting time. It's not necessarily about renovating a hotel: what guides us is buying an asset at the right price that we can then improve in terms of revenue, reduce costs, and thus create value," notes Lars Backhaus.
SomnOO focuses on hotels ranging from two to four stars (50% of hotels are three-star, 25% are four-star, and 25% are two-star). These hotels are operated under various brands, from Ibis Budget to Mercure, Campanile, Première Classe, Kyriad, and Best Western, as well as independent brands (15%). Most of these acquisitions were made in France (80%), with diversification in Germany (20%), each transaction involving between 50 and 180 rooms. "The mid-market segment is less volatile than the luxury segment," says Lars Backhaus. "We mostly operate in medium-sized cities with a fairly stable economic ecosystem. Operating under different brands allows us to maintain our independence and diversify our risks, as well as learn from each of the brands. "
65% of the hotels are positioned on a business clientele model and 35% more on leisure. "It's not planned! Regardless of the driver of its occupancy, what matters is the resilience of the hotel," notes the CEO.
"Today, SomnOO has become a major player, with revenue of €100 million and EBITDA of €30 million, thanks to its in-depth knowledge of the sector and its control over costs and resources," notes Pierre Dupuy-Chaignaud. And the company has recently strengthened its capital structure over the past two years with the arrival of two new shareholders, Bpifrance and Crédit Mutuel Equity. This proves that its leaders still have an appetite for growth: "Our goal is to continue to grow in line with our ultra-long-term vision for the hotel industry. The market remains highly fragmented, with a few players, like us, consolidating it. Consolidation at the second level may occur in the next ten years. Will we be the consolidators or the consolidated? It will all depend on corporate cultures and people, but we still want to support the market," concludes Lars Backhaus.