New Delhi, Jan. 10 -- US-based private equity firm Warburg Pincus will acquire Dutch pension fund APG's stake in a unit of Lemon Tree Hotels Ltd and has committed another Rs 960 crore ($106.2 million) as part of a multi-stage transaction that marks its return to the Indian hospitality group it first backed two decades ago before exiting in 2019.

As part of the transaction, Mumbai-listed Lemon Tree will transfer its hotel assets to Fleur Hotels Ltd while Warburg will buy APG's 41.03% stake in the unit and make a primary investment of Rs 960 crore to support its growth. The proposed reorganization will create two platforms-Lemon Tree will be an asset-light hotel management and brand platform while Fleur will be an hotel ownership platform.

Fleur will be listed on stock exchanges within 12 to 15 months after the completion of all stages of the transaction, which is subject to customary regulatory and shareholder approvals.

"With the Indian hospitality industry at an important inflection point, we look forward to leveraging Warburg Pincus' global network and deep real estate and hospitality experience to scale responsibly, advance digital-led capabilities and embed sustainability as a core pillar of Lemon Tree's and Fleur's long-term growth journey," said Patanjali Govind Keswani, founder and executive chairman of Lemon Tree and Fleur Hotels. Keswani will eventually transition to a non-executive role at Lemon Tree.

Warburg had invested about Rs 332 crore in Lemon Tree during 2006-2008, supporting its initial growth to become a prominent hotel brand in India. It made a partial exit via the company's initial public offering in 2018 and fully checked out in 2019 through open market transactions, generating below-par annualised returns on its investment. APG had invested in Lemon Tree in 2012 and owns 14.99% of the Mumbai-listed company, in addition to its stake in Fleur.

Transaction details

The transaction involves Lemon Tree merging two of its wholly owned subsidiaries-Carnation Hotels and Hamstede Living-with itself. Separately, it will merge four of its hotels with Fleur through a share swap. Then, it will demerge another 11 operational hotels, one under-construction hotel in Shimla, and one under-construction hotel in Shillong into Fleur.

Once the demerger and other stages are completed, the shareholders of Lemon Tree will own 32.96% of Fleur. Lemon Tree will directly own 41.03% while Warburg will hold the balance 26.01%. The shareholding will change after the PE firm makes primary investment in Fleur.

The deal will increase Fleur's owned portfolio from 3,993 keys and 24 operating hotels to 5,813 keys across 41 hotels. Lemon Tree, which already manages Fleur's existing portfolio, will also manage the 17 hotels it is transferring to the unit. It will also continue to manage its existing portfolio of third-party owned hotels, with 6,011 keys across 89 operational hotels and 9,414 keys across 127 hotels under various stages of development in India and internationally.

Lemon Tree, which opened its first hotel in 2004, now operates seven brands - Aurika Hotels & Resorts, Lemon Tree Premier, Lemon Tree Hotels, Red Fox, Keys Prima, Keys Select, and Keys Lite - across upper upscale, upscale, upper midscale, midscale, leisure, wildlife, and spiritual segments.

Published by HT Digital Content Services with permission from VC Circle.