Pandemic fuels real estate and hospitality turnaround M&A activity

The number of distressed and liquidation-related M&A deals, especially in the US and UK, has increased year on year as businesses struggle to adapt to their post-pandemic reality

The COVID-19 pandemic shook the global real estate and hospitality industry as lockdowns were put in place across the globe. The sudden and unexpected lack of footfall caused revenues in physical centers such as restaurants, shopping malls and hotels to plummet, compounding existing structural inefficiencies and accelerating the speed of change for many businesses.

Against this backdrop, the number of administration, distressed and liquidation-related M&A deals within the real estate and hospitality industry is on the rise. According to Dealogic data, the number of restructuring and turnaround deals in real estate and hospitality globally increased by 20% in 2020 compared to the previous year, with a total of 41 announced transactions. Deal value, meanwhile, increased by more than 10% to reach US$2.5 billion.

US dining in distress

The year 2020 saw a steady stream of US businesses file for bankruptcy as the pandemic took hold. According to S&P Global, US corporate bankruptcies reached their highest level in ten years in 2020, with a total of 630 companies declaring bankruptcy over the course of the year.

The restaurant and casual dining industry was hit particularly hard, especially among businesses dependent on in-person dining experiences. According to research firm Datassential, 10.2% of all US restaurants have closed permanently since March 2020—a total of 79,438 businesses.

The worsening financial situation among the US dining industry has led to an increase in distressed M&A opportunities. The largest turnaround deal of 2020 was US restaurant franchise NPC International’s US$816 million sale of more than 1,300 Pizza Hut and Wendy’s stores to Flynn Restaurant Group, announced in November 2020.

The sale, which was approved by the US bankruptcy court in January, is expected to close in the second quarter of the year. NPC had previously filed for bankruptcy in July 2020, citing the COVID-19 pandemic as having a compounding effect on ongoing issues—including a large amount of debt following a 2018 buyout.

Adapting to the new normal

Some restaurants are emerging stronger from the challenges of the pandemic. In February, US casual dining firm Ruby Tuesday announced it had emerged from bankruptcy, having filed for Chapter 11 protection five months previously as COVID-19 restrictions halted in-person dining.

According to the restaurant chain, filing for bankruptcy enabled Ruby Tuesday to shed liabilities, including leases from closed locations, and focus on 209 company-owned locations. The company has shifted its business model to focus on developing delivery-only brands, as customers increasingly choose online ordering over dining-in.

Pandemic heightens UK dining woes

The UK hospitality industry was dealt a sharp blow by the national lockdown, which brought the industry to a standstill. Trade body UKHospitality estimates the sector lost £80.8 billion in sales between April 2020 and March 2021—equivalent to £9 million every hour.

UK restaurant chain Pizza Express announced a recapitalization deal, handing bondholders ownership of the chain in exchange for paying down US$608.3 million in debt. The agreement, announced last November, marks the second-largest global turnaround deal of 2020, right after the NPC International sale.

UK mid-market restaurant chains were already struggling pre-pandemic due to oversupply in the market, long-running structural issues and mounting overhead costs. Pizza Express, for example, had reportedly posted a £350 million loss even before the impact of the pandemic was felt.

The pandemic, however, exacerbated an already hard-hit industry, with almost 20 UK dining chains filing for bankruptcy or being forced to find new owners since the national lockdown began.

Private equity supplies much-needed funds

The embattled sector has seen interest from private equity firms looking to capitalize on turnaround opportunities. US-based investment firm Towerbrook Capital Partners’ acquisition of Bridgepoint-backed Azzurri Group—owner of UK-based restaurant chains Zizzi, ASK Italian and Coco di Mama—is an example of this trend.

The transaction, announced in July 2020, was implemented through a pre-pack administration process, enabling Azzurri to restructure its balance sheet and operations. Through the deal, Towerbrook has committed over £70 million to support Azzurri’s post-COVID recovery.

In another deal that saw an investment firm rescue a PE-backed restaurant chain, London-based Epiris acquired UK restaurant operator Casual Dining Group, previously backed by KKR—also announced in July. The purchase, which includes more than 140 restaurants under the Bella Italia, Café Rouge and Las Iguanas brands, bought the company out of administration—saving an estimated 4,000 jobs in the process.

Shopping centers fight for survival

Prior to the outbreak, shopping malls were already under pressure from ecommerce giants and shifting consumer habits. The COVID-19 pandemic accelerated this trend, leaving shopping malls fighting for survival.

One high-profile shopping center owner that suffered from this trend was CBL Properties, which filed for bankruptcy in November 2020. The US-based property company cited COVID-19 disruption and the inability of tenants to pay rent as reasons for the move. Several of CBL’s highest paying tenants, including department store chain JC Penney, had also filed for bankruptcy in 2020.

In March 2021, it was announced that a restructuring support agreement had been approved by CBL’s credit facility lenders and noteholders—eliminating US$1.6 billion of the company’s debt and preferred obligations.

Real estate may be playing possum

As a result of the downturn in hospitality and retail, value for respective real assets is depressed—but perhaps only in the short term.

Real estate owners may be preferring to sit tight and hope for recovery, rather than realize losses and enter into distressed real estate transactions now—for so long as financing banks allow them to do so.

PE investors and opportunistic funds looking at whether openings exist for distressed real estate acquisitions are advised that such opportunities are surely in the offing, but the optimal time to act may yet be months away. Better times are coming, along with more lucrative opportunities.


As societies gradually emerge from lockdown in 2021, the global real estate and hospitality industries will enter a period of recovery and readjustment. A brightening macroeconomic outlook, boosted by the rollout of vaccines and gradual lifting of lockdowns across the globe, will boost business and consumer confidence. Economic recovery, however, will be uneven, and dependent on national policies.

While much remains unclear, one certainty is that real estate and hospitality businesses will be operating in a new normal mode as they emerge from the COVID-19 crisis. This new reality will require a change in business model—with an increased focus on changing consumer habits and digital innovation. The need to regenerate the industry will likely prompt a wave of restructuring activity and distressed M&A as businesses look to adapt to the changing environment.

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