The Interview: Pat McCann - Chief Executive of Dalata

Hotel group was kept alive by generating income from other sources. Now the survival bit is done, the focus is to grow the business in ever-challenging times. By John Mulligan

Upbeat hoteliers are probably not the most common of breeds at the moment.

But Pat McCann, the chief executive of Dalata -- the management company behind the Maldron Hotel brand -- is one of the few exceptions on a savannah that has been savaged by the economic bloodbath.

"In reality, if you look at our business that started in 2007, and we paid a fairly hefty price at the time relative to now, we shouldn't be around today quite frankly. We just shouldn't exist," says a forthright McCann, who turns 60 later this year, and chats over a coffee in one of the Maldron hotels.

Being kind, McCann, the former boss of the Jurys Doyle hotel group, launched the Maldron hotel brand at the most inopportune time.

Being blunt, and with the significant benefit of hindsight, it could be branded near lunacy. To be fair, few envisaged at that stage how steep the cliff was that the economy was about to topple over.

McCann staked €1m of his own cash on Dalata and over 80 private clients of Davy Stockbrokers stumped up a further €20.5m. The Shane Reihill-headed investment group TVC also invested €10m in the project, while €15m in borrowings were added to the kitty.

Using that money they paid €46.5m to buy 10 hotel properties from developer Paddy Kelly. By 2012, it was expected that the Maldron business would have grown its earnings before interest, tax, depreciation and amortisation (EBITDA) from €2.5m in 2007 to €11.5m. Davy worked on the assumption that if the Maldron business was sold in 2012, it would be worth about €100m.

McCann readily accepts that things haven't gone according to plan so far.

Operating losses in 2009 at Dalata, which includes the Maldron business and income from roughly a dozen properties the firm operates on behalf of receivers, were €35.5m after it shouldered a non-cash goodwill impairment of €35.2m. The previous year, the operating profit was just over €2m.

"I'm over 40 years in the business and the last three years have been the most challenging of my career," according to McCann. "It has been very difficult and while you might like challenges you'd like them to be slightly different ones."

He also says that the Maldron shareholders are realistic and accepting of where the business is right now and that he retains a "good relationship" with lots of them. One investor -- TVC -- has written off almost its entire investment in Maldron.

"We're still here though and I suppose it's because we've managed our business well," McCann believes. "We generated income from other sources to keep it alive. It's not a question of us sitting on our hands and whingeing, but we've done the survival bit and now we need to grow."

He thinks it's going to take him until 2015 or 2016 to get to where he thought he'd be next year.

"I think it's going to take me another three years, particularly if we get enough traction in the UK," he explains. "I'd be foolish to say it's going to happen sooner, because it's not. We're so well geared now as a business in terms of our cost base and our cost structure that any growth in revenue would add significantly to the bottom line."

For 2010, he says Dalata will post profits approaching €1m and it currently owns or manages 23 hotels.

Maldron opened its first hotel in the UK -- in Cardiff -- in May and is actively scouting for new sites. McCann hopes that he'll have four to five hotels in the UK within the next three years or so.

Meanwhile, additional income has been generated from taking over the management of hotels that have been placed in receivership by banks. There's no shortage of such properties these days, while McCann has also been appointed a non-executive director of the leisure arm of the Quinn Group, whose hotel assets he describes as "excellent".

Meanwhile, among the well-known hotels now managed by Dalata are Whites of Wexford, the Breaffy House resort in Mayo that was controlled by hotelier Michael Lynch, the Portlaoise Heritage Hotel, and Citywest Hotel -- formerly part of businessman Jim Mansfield's crumbled empire. Not all, he says, were necessarily loss-making before Dalata took over.

"The question is were they well enough structured? In essence, it's the fact that the debt was too high and the banks had to move to protect their positions. So, our job is to create value in those assets because at some point the banks will look to sell them."

He maintains it's difficult to know precisely which hotels Dalata manages are directly connected to the National Asset Management Agency (NAMA). Some of the hotels were financed by institutions not covered by the bank guarantee, such as Bank of Scotland (Ireland).

But NAMA is rarely far from many businesses these days. Suites that belonged to Paddy Kelly in Maldron's Cardiff Lane hotel were taken control of by NAMA in March.

McCann admits it's not pleasant, but he says he makes a point of meeting with all the owners of the properties in receivership that Dalata manages.

"I've always tried to maintain a very strong relationship with the owner and still do in all cases," he says.

And their reaction to him?

"It's very difficult, but their anger, if there, doesn't get directed towards me. You must always remember that you're dealing with people and I believe in treating them with dignity and respect. To be fair, I haven't seen the banks or receivers behaving any differently."

He's also keenly eyeing up some of the hotels managed by Dalata on behalf of receivers.

"There are specific assets we would certainly look at if the time and price was right. We would examine all options open to us," he says. "To be quite honest, there's about 800 hotels in Ireland and I know most of them and the ones that make sense and the ones that don't." Some of those 800 hotels, on the periphery of Dublin in particular, have a very bleak outlook, he reckons.

He adds that there are "creative ways" of doing deals with receivers, but won't be drawn on whether one of those avenues could include assuming some of the debt that was attached to the businesses.

"There could be creative ways in how we could take on those assets. It's early days but there have been some preliminary discussions around some of the assets. We're looking at a solution, the banks need a solution, and maybe somewhere in the middle the two of us can meet."

For now, careful stewardship of Dalata's existing portfolio is the main game. Although, with room rates down 30pc from their peak, keeping any hotel operation in the black is a much tougher task these days. Increased conference and corporate bookings in the capital have helped business, however, McCann points out.

Selling Maldron also remains the long-term intention, he confirms.

"At some point we'll have to have a liquidity event where investors will want to get out and new ones might want to get in."

So, what then for him?

"I reckon I have another good five years. I retired in 2006 and it was the biggest mistake of my life. I wasn't ready for it. I have to be doing things," he adds. "That just doesn't leave the system. Some people are quite happy to ride off into the sunset and I'd love to be one of those type of people, but I'm not. You're better to wear out than rust out."