The planned acquisition of the Island Hotels Group by IHI is the largest private transaction on the islands – and the first by publicly-listed companies. The surprise announcement generated a number of questions about the motivation behind the deal, and its long-term impact. The CEO of Island Hotels Group, Winston Zahra, explained to Vanessa Macdonald why he has described it as an “evolution”.

It is clear why IHI would have wanted the footprint of the Radisson in St Julian’s, given their plans to construct a six-star resort there. But why didn’t you just sell that hotel? Why did you sell the whole of the group?

When you look at this transaction, you have to do so with a long-term vision. We have grown the group over the past 27 years from 100 rooms and a team of 25 to what it is today and taken various strategic decisions along the way. We started with the Buġibba Holiday Complex, which had reached a level of maturity where we felt we could not take it any further and sold it.

Earlier last year we divested the Coastline Hotel as we did not feel it fit our strategy any more. These decisions strengthened the group and created new opportunities.

Our strategy going forward was to continue building quality products within the local tourism industry. We know that IHI’s vision for Malta is very much the same.

When we designed the project in St Julian’s it was very much with a view to taking the five-star level of accommodation up to a new level of quality. However, when we heard that IHI was developing next door with a similar view, we felt the most obvious thing to do was to sit down with our next-door neighbour and to establish at least a conversation where the end product – even if it were a separately developed one – was at least complementary and not conflicting.

The best way for the family to continue to contribute towards the tourism industry and to help push this quality leap is to join forces with IHI

Those discussions soon led to an internal one where we did not feel that we wanted to fragment our group by simply considering the sale of the Radisson in St Julian’s. It made much more sense to sell all the business units within the Island Hotels Group. There is a lot of scope for consolidation and the best way to grow our group is as part of IHI – with our full involvement going forward. My father is going to remain involved to an extent and I am going to remain fully involved in the new set up.

This is why we see it as an evolution which will allow the Island Hotels Group to grow... but now within IHI.

In a nutshell, we feel that the best way for the family to continue to contribute towards the tourism industry and to help push this quality leap is to join forces with IHI, in the local context with the added benefit of the international opportunities.

If you wanted to grow you could have done the acquiring yourselves. Why take a lower position rather than that of the aggressor?

I don’t see this in terms of aggressor or lower position. Ultimately we are talking about two families who have known each other since tourism started in Malta: Mr Pisani and my father were there at the initial stages, both pioneers of the tourism industry in Malta. The next generations have known each other all our lives, and competed with each other but never had any clashes. It has always been friendly competition and friendly conversation. And we worked together on various initiatives. This was the most natural progression. The negotiations were very straightforward – tough on both sides as you would expect – but very amicably done.

We are bringing a number of excellent properties, in excellent locations, to the table including the Radissons in St Julian’s and Golden Sands as well as the Oasis project.

We have a very strong catering brand on the events side and a very strong timeshare brand – a business that IHI are not involved in so far. And we are also bringing the Costa Coffee brand to the table. So we are bringing elements to the transaction which are very strong and have the potential for growth.

The knee-jerk reaction of some people was that the sale was forced because the Island Hotels Group was not doing well financially... In fact, the group posted losses in 2011 and 2012. Did you have your backs to the wall?

If we had had our backs to the wall, we would not be selling for an enterprise value of €106.5 million. You do not conclude what I believe is the largest company deal ever made in Malta by two local companies if you are not doing well.

IHI was not born into the hotel business yesterday. They would not acquire the assets of a company if it were not doing well.

The reality is that in the years you mention as a group we still had a healthy Ebitda (earnings before interest depreciation tax and amortisation) result. In 2013 we grew Ebitda and made a modest net profit. Last year was a record year for us – the results will be published soon – and they are excellent, in every business unit.

The sale is also not a question of not being able to do anything else. It is a question of where we want to see the company in 10 years time, and what kind of opportunities we want to create for ourselves as a family – which includes the 1,000+ employees within the group.

Yesterday, the opportunities were within Malta and maybe Costa in Spain. Tomorrow, the opportunity for all the team is Malta, London, Spain, Prague, Budapest and so on, through the much wider context of the IHI family.

With this transaction we have accelerated our growth path. No more. No less.

One of the main factors driving this transaction is a belief in both companies that Malta can rise to a new level of quality in the years ahead

What will happen to the Radisson brand?

We have operated under a franchise agreement with Radisson for 18 years, while Corinthia is a home-grown and home-owned company. Would it make sense to remove the Radisson brand and replace it with Corinthia? That is something that we are looking into.

Radisson is happy to stay. It wants its brand on as many buildings and in as many countries as possible. We have spoken about it, they understand the logic and now we need to decide what makes most commercial sense.

And Costa?

The Costa franchise is an important part of our group and going forward we have every intention to build on the good work that has already been done over the past years in Malta and more recently in Spain.

Will Corinthia proceed with the Ħal Ferħ project?

The Ħal Ferħ project is a tremendous opportunity to replicate IHI and our vision for quality tourism in the north of the island. One of the main factors driving this transaction is a belief in both companies that Malta can rise to a new level of quality in the years ahead. This project falls firmly within this vision.

IHI’s point of view

An IHI spokesman explained why the company was interested in the acquisition and how it fits into its current and future scenario.

IHI has a strong vision for Malta. We want to draw upon our successful track record as investors, developers and operators of luxury hotels across Europe and bring that expertise to the benefit of Malta.

Acquiring the Island Hotels Group gets us one step further down that road. We are now able to focus our efforts in developing a luxury hotel product in St Julian’s in a more consolidated manner. In fact, as we speak, plans are being updated to take this acquisition into account and move towards a commencement of works in the nearest possible time frames.

The land at Ħal Ferħ, which now forms part of the IHI Group, is a further opportunity to replicate this vision in the north of Malta.

Besides, there are obvious synergies in merging Island Hotel Group’s hotel and catering operations into our own, as well as a body of knowledge within the group – including areas where we were not recently involved such as timeshare – which is now a part of the IHI Group.

Our track record and financial position allows us to tap both internal and external sources of funding and while we have acknowledged a decline in demand for our hotel in Tripoli in recent months, and faced a weakened rouble/euro conversion at our St Petersburg hotel, we have just come out of record profits in each of our hotels in Budapest, Prague, Lisbon and Malta which provide us with a strong platform of geographically balanced positive revenue streams.