Shares in hotelier Mantra Group Ltd (ASX: MTR) have jumped around 5 per cent to $2.84 in Monday morning trade after it announced it's to buy the Art Series hotel group in a $52.5 million deal.
The seven hotels being acquired are under leasehold and management letting right models similar to those that Mantra operates most of its current properties on under the popular Mantra, Peppers or Breakfree brands among others.
The group has not provided much detail on the financials behind the deal other than to confirm it is to be funded via a mixture of cash and debt and is expected to be "immediately accretive to underlying EPS".
Of course using debt to make earnings per share accretive acquisitions is not always beneficial to a business, as debt always has to be paid off in the future at sometimes punishing rates of interest. For example paying off debt may require the dilutory issue of more shares in the future, although there's no suggestion this will happen for this deal.
Mantra estimates that the Art Series hotels will contribute $7 million in underlying EBITDA in their first full year of ownership and this will rise to $8.5 million to $9 million in annual EBITDA "at stabilisation". In other words the deal has been done at 7.5x EBITDA, which is about in line with historical industry averages.
Mantra shares might be good value at $2.84 as this is a business on a reasonable valuation, with an attractive yield and arguably decent outlook based on Australia's steadily growing tourism and business travel sector.
