NEW YORK CITY Morgans Hotel Group Co. is acquiring the remaining 50% interests that it does not own in its restaurants, effectively buying out its third-party food and beverage management company.
Morgans will spend about US$20 million to acquire the full stakes in its restaurants and bars from China Grill Management, which had operated F&B outlets at its Delano, Mondrian Los Angeles, Mondrian South Beach, Morgans, Sanderson and St Martins Lane hotels.
The transaction converts China Grill’s long-term management arrangements into short-term cancellable management agreements for each property. As part of the agreement, Morgans’ ownership interest in the Asia de Cuba brand and all related intellectual property will be transferred to China Grill.
China Grill will continue to manage the operations for a transitional period while Morgans reassesses its F&B strategy.
“We have had a great partnership with CGM for many years but we felt it was time to reassess our F&B strategy and consider alternative approaches to strengthening this important area of our business,” says Morgans CEO Michael Gross. “We are actively reviewing all our food and beverage concepts and are excited about the opportunity to further enhance the buzz that makes Morgans special.”
Based on 2010 results, the US$20 million purchase price represents a 5.7-times multiple on EBITDA of US$3.5 million, based on China Grill’s ownership and management fees. The purchase will be funded through cash on hand generated through the recent sale of Mondrian Los Angeles. The ultimate cost to Morgans may be reduced, as the company is in discussions with its hotel owner partners to have some of the F&B assets purchased by the respective owners.