Warburg Pincus in line for big payday from 7 Days

Chinese budget hotel chain 7 Days Group Holdings Inc. said Wednesday, Sept. 26, that a group including U.S. investment firms Carlyle Group and Sequoia Capital has offered to take it private in a deal valued at about $635 million.

Led by 7 Days co-chairmen Boquan He and Nanyan Zheng, who together control one-third of the shares, the bidders have offered $12.70 per American Depositary Share, a premium of 20% over the ADS's Tuesday closing price of $10.57 on the New York Stock Exchange.

The target said it would form a special committee to consider the offer.

Private equity sponsor Warburg Pincus, a 16% owner, would reap a bonanza from the proposed deal. It invested about $20 million in 7 Days in 2006. The bid values its holding at $101.6 million.

Guangzhou-based 7 Days operates more than 1,100 limited-service hotels in 168 cities. It posted Ebitda of $25.9 million and non-GAAP net income of $9.7 million on net revenue of $99.6 million in the quarter ended June 30.

Washington-based Carlyle has invested in more than 25 Chinese companies since 2000, according to its website. In its last Chinese deal, the firm in August bought 13.5% of Beijing-based preventive healthcare services company Meinian Onehealth Healthcare (Group) Co. Ltd.

Sequoia, a Silicon Valley venture capital giant, set up shop in China in 2006 with a $200 million fund. Its Sequoia Capital China arm has subsequently raised hundreds of millions of dollars more.

The 7 Days bidders said they would finance the deal with a combination of equity capital and debt.

The group has tapped Skadden, Arps, Slate, Meagher & Flom LLP and Kirkland & Ellis LLP for legal advice.