Business Opinion: The timing of last week's announcement that Seán Quinn was buying the Belfry for £186 million (€270 million) was fortuitous.
It would be unfair to accuse such a manifestly modest man of hubris, but he no doubt took some satisfaction that it came within days of Richard Caring closing the £130 million purchase of Wentworth in Surrey.
The Quinn Group was outbid by Caring for Wentworth and clearly felt hard done by. It was apparent from correspondence that emerged at the time that it was far from happy with the way the sale was conducted.
At one stage, things got so bad that Mr Quinn felt compelled to write to Rothschilds, which was conducting the sale, to complain of a "lack of clarity and order surrounding the conduct of the sale process to date and to the treatment of our approach".
Having initially offered £87.5 million, Quinn ended up tabling a £122 million bid, but was eventually trumped by Mr Caring. No doubt he was disappointed at the time but, with hindsight, he would appear to have been lucky.
The Belfry looks like a much better investment than Wentworth. It is located near to Birmingham and the facilities include a 324-bedroom luxury hotel with leisure and conference facilities. Then there are the three golf courses, including the internationally famous Brabazon, which has hosted the Ryder Cup four times.
The Belfry is also home to the European Professional Golfers' Association which runs the professional tournament circuit in Europe.
Wentworth also has three golf courses and a tennis and health club. However, accommodation runs to less than 20 rooms. Its location, in the heart of London's stockbroker belt, is arguably superior, but Quinn appears to have struck a much better deal with De Vere Group - the owners of the Belfry - than he was going to get from Chelsfield for Wentworth.
Or did he? Quinn Group is paying £186 million in cash for the Belfry, which according to De Vere group had a turnover of just under £34 million last year and earnings before interest, tax, depreciation and amortisation (EBITDA) of just more than £14 million. Operating profit was £12.2 million. On this basis, the price works out as a multiple of around 13 times EBITDA or more than 14 times operating profit, which is at the top end of valuations for hotel-type business.
Equivalent information is not available for Wentworth. However, the 2003 accounts for Wentworth Group Holdings show that operating profits were just less than £6 million on a turnover of £17.6 million. Based on this figure, the £122 million offered by Quinn represents an amazing multiple of 20 times.
But this is misleading. The true cost to the Quinn group of Wentworth would have been nearer £100 million. This was because the price was to be based on the net assets of the property, which were significantly less than the fixed assets of £122 million.
According to the Quinn Group offer document, the net assets were likely to work out at something in the region of £94-£99 million. Taking the midpoint suggests the price was 16 times 2003 operating profits. Assume a decent improvement in operating profits for 2004 and you are not very far off a multiple of 14 times.
If you then take into account that both businesses have similar margins and that Quinn group will have to pay a profit-based management fee to De Vere for the next 25 years, then the Belfry stops looking quite so much like a bargain. And that really should not come as a surprise.
Close Brothers, the advisers to De Vere Group were unlikely to let Quinn have the Belfry for less - in relative terms - than he was prepared to pay for Wentworth. Particularly if, as it seems, De Vere were not really looking to sell in the first place.
The group had previously ruled out using such "sale and manage-back" deals to release capital even though these deals are flavour of the month among big hotel groups.
Mr Carl Leaver, the De Vere chief executive, described the Quinn approach - which was at a 47 per cent premium to the Belfry's book value of £126.2 million - as "a special situation".
Quinn's problems were compounded by the fact that he had been bid up at Wentworth by someone who appeared to be somewhat divorced from reality and essentially pursuing a vanity investment.
All this raises the same question that was posited at the time of the Wentworth deal. Is the Quinn Group overpaying for a trophy asset?
At one level the answer is a very simple no. In the Belfry, the Quinn Group has made a long-term investment which is, in effect, rented to a blue-chip tenant and returns a reasonable yield secured by a diverse income stream.
Mr Quinn has done his sums and for him they still add up at that price, no doubt helped by the prospect of better-than-average capital appreciation due to the trophy status of the property. It is the rationale behind most of the high-profile deals being done in the UK by Irish investors at the moment.
The real question is how realistic are the assumptions that Quinn Group and all the other investors have made in doing their sums. That will only become apparent in time.
