Soho House Goes Private for Members

Soho House Going Private in Major Investment Deal

A significant development has taken place in the world of private members' clubs as a group of investors, led by one of the country’s largest hotel owners, has successfully acquired Soho House. This move marks the end of a prolonged period of uncertainty regarding the future of the company, which operates a network of exclusive members’ clubs across the globe.

Ron Burkle, who currently holds a controlling stake in Soho House, will be rolling over his shares along with other existing shareholders. The new investment group is being led by MCR Hotels, a New York-based firm known for its extensive portfolio of hotel properties. The deal was officially announced on Monday, confirming earlier reports from The Wall Street Journal.

Under the terms of the agreement, shareholders will receive $9 per share for the company’s outstanding public stock, which represents approximately 15% of the total equity. This valuation places the company at around $1.8 billion, excluding debt. The stock had closed at roughly $7.60 on Friday, and Soho House has stated that the transaction implies an enterprise value of $2.7 billion, including debt.

In addition to the equity investment, Apollo Global Management is providing more than $700 million in both equity and debt financing. This financial backing was crucial to the deal, with sources indicating that the firm played a central role in facilitating the acquisition.

The transaction effectively ends a campaign by Dan Loeb and his hedge fund, Third Point, which had been urging the board to explore alternative bidders in an attempt to secure a higher price for the company. Loeb had previously criticized the initial offer as a “sweetheart” deal, arguing that the process lacked transparency.

A History of Exclusivity and Celebrity

Soho House clubs are typically located in prime locations across major cities in Europe, the U.S., and beyond. Members pay annual fees, which can range into the thousands of dollars, to gain access to private dining, lounges, bars, and cultural events such as live music, book readings, and film screenings. The club has long been associated with celebrities, designers, musicians, and writers, with notable figures like Lady Gaga, Prince Harry, and Meghan Markle having been spotted at its locations.

The Manhattan club even made an appearance on an episode of "Sex and City," where Carrie Bradshaw was turned away, adding to the club's mystique. Soho House prides itself on fostering a relaxed and creative atmosphere rather than a strictly business-oriented environment. It has also engaged in unique partnerships with artists, who have occasionally traded their work for membership. The dress code is famously informal, with suits and ties discouraged.

Expansion and Challenges

The success of Soho House sparked a wave of interest in private member clubs, particularly in Manhattan. Today, more than a dozen such clubs operate in the city, including Zero Bond, where New York Mayor Eric Adams has often been seen. Other recent additions include San Vicente Bungalows, which requires members to cover their phone cameras upon entry, and establishments like Major Food Group, Casa Cipriani, and Jean-Georges Vongerichten’s New York members’ clubs.

Soho House has grown rapidly, now operating 46 locations worldwide with over 200,000 members. The company started in London in 1995 and expanded to New York in 2003. However, it has faced challenges in maintaining exclusivity while expanding. Some members have expressed concerns about slower service as the number of members increases, and securing a reservation at the swimming pools in downtown Manhattan or Brooklyn has become highly competitive.

Company executives have emphasized that growth should come through opening new locations rather than increasing membership at existing clubs. According to Soho House, its membership growth has primarily come from new club openings, with a retention rate of 91.5% in 2023.

Financials and Future Plans

Ron Burkle first acquired a majority stake in Soho House in 2012. In December, the company received a $9-per-share offer, with Burkle on board to roll over his shares into the private company. At the time, the stock was trading under $5. However, in January, Loeb revealed he held a nearly 10% stake and criticized the offer as unfair.

Soho House went public in 2021 at $14 per share, but the stock has experienced volatility as losses mounted. This fluctuation reflects the nature of the members’ club industry, where growth can be inconsistent. One reason for going private is that Soho House will no longer be subject to quarterly earnings reports, which can lead to unpredictable results.

More recently, the company has shown signs of financial improvement. Earlier this month, Soho House reported its third consecutive quarter of net profit. Membership revenue grew by 15.9% year-over-year to $118.6 million, and the share price has been rising.

MCR Hotels: A Major Player in the Industry

MCR Hotels, the leader of the consortium that acquired Soho House, owns 30,000 guest rooms, making it one of the largest hotel owners in the U.S. Many of its properties are select-service hotels from Hilton and Marriott, but in recent years, MCR has expanded into more high-profile properties. These include the Royalton near Times Square and the Gramercy Park Hotel, both of which are popular in Manhattan.

MCR has also gained attention for converting historic buildings into luxury accommodations. For example, the TWA Hotel at New York’s Kennedy Airport is housed in the Eero Saarinen-designed former airline terminal. Last year, MCR purchased the BT Tower, one of London’s tallest buildings, and is in the process of converting it into a hotel.