New Delhi: Lemon Tree Hotels has signed a non-binding term sheet with Berggruen Hotels to acquire its loss-making Keys Hotels.

ET had reported previously that entities such as Oyo had expressed interest in acquiring Keys Hotels, a mid-market chain that owns and operates properties in India.

The deal is economically lucrative and represents 1.5% of India’s hotel inventory, Lemon Tree Hotels Chairman Patanjali Keswani said in an interview to ET. The addition of Keys Hotels will enhance Lemon Tree’s scale and network. He declined to disclose the size of the deal, but industry experts estimated it to be about $70 million.

“It is very synergistic. It (Keys) is in many cities where we are not present,” said Keswani.

Lemon Tree Hotels currently operates 5,411 rooms in 54 hotels across 32 cities. The acquisition, when completed, will expand its operating portfolio to 75 hotels with 7,322 rooms in 44 cities.

Keswani said the acquisition will give Lemon Tree Hotels access to new corporate and individual customers in cities where it is currently not present, a larger repeat customer base and help to significantly eliminate costs.

“It is a very fragmented market. The larger the inventory we control, the better our ability to get better pricing,” Keswani added.

Lemon Tree will acquire 100% of the shareholding of Keys Hotels directly or through its subsidiaries, the company said in a stock exchange filing on Thursday. Completion of the transaction is subject to due diligence and obtaining the requisite approvals.

Keys Hotels owns and manages 21 hotels with 1,911 rooms in 19 cities in India. Keys had been scouting for buyers for a few years and has an estimated debt of about Rs 160 crore.

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ET reported in its edition dated February 9 this year that SoftBank-backed Oyo Hotels and Homes was in talks with Los Angeles-based Berggruen Holdings to acquire Keys Hotels. Berggruen Holdings, the owner of Berggruen Hotels in India, was founded in September 2006 to build and operate business hotels under the Keys brand.

Keswani said the company will consider more inorganic growth opportunities.

“We are very location-driven. We do not acquire a hotel at a lower price unless the location and the product make sense. The second thing we look at is our ability to improve performance… We will look at inorganic growth opportunities if we see an enormous arbitrage in the cost of acquisition,” Keswani said.

This week, Lemon Tree Hotels got on board ex-Ginger CEO Rahul Pandit as MD and CEO of Hamstede Living, its recently formed co-living joint venture with private equity firm Warburg Pincus. Pandit has a 0.5% stake in the JV.

Lemon Tree Hotels said in December it had formed the joint venture with an affiliate of Warburg Pincus to enter a new business segment focusing on the development of institutional-grade rental housing accommodation serving both students and young working professionals across major educational clusters and key office markets in India.

“Right now we are evaluating about 20 opportunities. We are deliberately going slow because we have defined the business model. It is now very clearly articulated. We have a minimum return expectation and we are looking both at acquisitions – most are acquisitions – and a few greenfield opportunities. These will deals of a certain scale and are not small,” Keswani said.

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