Is Soho House a short or a bid target?

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Soho House, the private members club that operates from 40 locations worldwide, and which is listed in New York under the ticker SHCO has been in the news as a short seller target or a potential acquisition. So which one is it?

Membership still in demand

The owner of the Ned hotel chain and Scorpios beach-club brands recently published its Q4 and full year 2023 results.

Which showed that membership numbers had risen by just over 4000 to 259, 884 in Q4 and by +14.60% over the full year.

  • What’s more, there is a waiting list for membership of more than 99,000.
  • Revenues from membership subscriptions grew to $95.80 million for the year.
  • So-called in-house revenues jumped by +3.80% to $125.20 million, and total revenues at the group grew by +7.50%, year over year, to $290.80 million.

However, despite the higher turnover Soho House posted a loss of $0.29 per share, thanks largely to a -$47.0 million impairment charge taken against its North American operations.

Poor performance since IPO

Soho House was listed in the US, back in July 2021 with a value of $2.50 billion (£1.90 billion).

However, in the years since then the company’s market cap has shrunk to just $1.172 billion and that, only after +20.0 % rebound in the Soho House share price, following talk of private equity interest in the business.

In the days after listing Soho House shares briefly traded up to $14.87, from the $14.00 issue price, Which itself was the lower end of the anticipated range.

On debut, the stock had traded below par and would go on to trade down to $3.08 in late December 2022.  Since when it has struggled to break and stay above $7.00.

Glasshouse bear raid

CEO Andrew Carnie has questioned whether it’s worth Soho House being a quoted company, in the wake of a report on the business by short seller Glasshouse Research.

The report highlighted the firm’s mounting debt pile, with more than $600.00 million said to be falling due in 2027, and the lack of profitability over the lifetime of the group.

Glasshouse also suggested that Soho House was diluting the brand by opening in less profitable locations such as Sao Paulo in Brazil, and by overcrowding existing venues leading to customer dissatisfaction.

Charges that Mr Carnie has strongly denied.

Vested interests

The board of directors, which includes London restauranter Richard Caring, own some 75.0% of the stock between them.

CC Capital, run by former Blackstone executive Chinh Chu, is said to be interested in taking the business private, according to reports from Reuters.

The Soho House board had already formed a special committee to look at the feasibility of it becoming a private company once more.

So it could be that they would be receptive to an approach?

Chairman Ron Burkle wrote to shareholders earlier this week saying that he intended to be an owner of the business for a very long time, but that he hasn’t made a bid and nor was he part of any group that may bid.

However, he also let it be known that he wasn’t prohibited from doing so.

Is Soho House a buy, sell or hold?

Soho House is not a dead duck, after all, it’s growing revenues and has a substantial waiting list for membership, but it does need to address profitability

The question is, is the brand worthy of a bid premium? Or would a suitor be happy to pay the current levels, but not more, given the debt burden?

With few independent shareholders of any size, it seems likely that a prospective buyer would have to convince the board members of the merits of any offer.

However, they may have designs of their own for the business.

As to the short sellers, they seem to be on a hiding-to-nothing, with limited liquidity in the stock, high insider ownership and private equity interest in the mix, one would have thought there were easier targets out there for them to tilt at.

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