Soho House Group leadership supports the sale of the club chain

Offer follows a tumultuous few years for Soho House

The original Soho House, at 40 Greek Street. (Picture credit: TipAdvisor.)

Having recently reported on developments at the Groucho Club, I thought it worth looking at one other high-profile modern London club with a global brand: Soho House. This is particularly timely, as Soho House’s Executive Chairman has expressed his support for a mooted $1.75 billion buy-out of the embattled club chain.

Soho House was the original club chain. While the revival of London Clubland owes a great deal to the 1985 creation of the Groucho (which is far closer to ‘traditional’ Clubland than it might care to admit), it was the 1995 creation of Soho House, and its subsequent spin-off into a franchise, that created the template for the modern, proprietary club ‘chains’ we see cropping up worldwide with increasing frequency. And with 46 clubhouses plus assorted spinoff hotels and co-working spaces worldwide, Soho House remains the largest and most conspicuous of the chains.

The Soho House Group has sustained criticism in recent years over its 2021 decision to switch from a private company to a public company - something already acknowledged last March by its Executive Chairman and majority shareholder, Ron Burkle, who openly mused to minority shareholders whether the group should revert to being a private company, and “whether Soho House should be a public company”. Indeed, since the autumn of 2023, an “independent Special Committee of the Board” of Soho House has been actively investigating options for returning to private ownership.

It emerged this month that an anonymous “third party consortium” has offered to buy the Soho House Group at $9 per share, or $1.75 billion (£1.35 billion). This compares to its initial 2021 flotation of $14 a share, or $2.5 billion (£1.9 billion), and is reportedly a much higher bid than one which the Group turned down in May, on the grounds of it having “undervalued” the chain. The news prompted a surge in Soho House’s share price this week. The new offer is supported by Burkle and his investment firm (The Yucaipa Companies).

Bloomberg’s Chris Bryant characterised the offer in an opinion piece:

“After a volatile three-year charm offensive, a hungover and disillusioned Soho House & Co. is turning its back on Wall Street. It’s fair to say there’s no love lost…After making no secret of his frustration with the British firm’s dismal valuation and his interest in taking the company private, billionaire Executive Chairman Ron Burkle, who’s the largest shareholder, is supporting the bid — which represents a juicy 83% premium to the prior-day closing price. (The deal would involve Burkle, his Yucaipa Companies and other significant shareholders rolling over their equity.)

“More than a decade after a Soho House in New York’s Meatpacking District purged hundreds of members to regain its cool — there were too many suits — the group is effectively purging its minority shareholders and presenting them a token parting gift…

“I’m no Soho House hater — its properties are often highly attractive. But I’ve long been skeptical about Soho House as an investment. The group has 45 venues and boasts more than 200,000 members but has never reported an annual profit in its near 30-year history; meanwhile, net indebtedness is high at around five times the adjusted earnings before interest, tax, depreciation and amortization it expects to generate in 2024. Those borrowings include almost $650 million of senior secured notes maturing in 2027, which were subscribed by funds managed by Goldman Sachs Group Inc., and incur more than 8% interest (most of that interest expense is paid “in kind” by accruing more debt.)”

This follows a recently-posted profit for the Soho House Group, which recorded a profit of $0.2 million on a turnover of $333.4 million, in Q3 2024. This is only the second quarter in Soho House’s 29-year history when they have recorded a quarterly profit, after Q4 2022. They have never yet recorded an annual profit. Last year, they reported a loss of $118 million (£93 million).

Soho House was founded in London in 1995 as a standalone club in Soho’s Greek Street, but it subsequently expanded; first with the creation of other UK branches from 1998, and then with a New York branch in 2001 spearheading a range of international branches - there are currently 46 houses worldwide, spanning Denmark, France, Germany, Greece, Israel, Italy, Netherlands, Spain, Sweden, Turkey and USA. It also has venues such as Soho Works, the chain of co-working spaces, as well as hotel/club hybrid spin-offs such as The Ned in the City of London with its branches in New York and Doha, and which is about to launch a Washington DC spin-off in the New Year. The chain has continued to expand, borrowing heavily to fund its expansion; yet while individual parts of its empire remain profitable, the chain continues to post annual losses.

Earlier this year, the short-selling company GlassHouse Research released a damning report, in uncharacteristically emotive language for a report of its kind, arguing that it is “a company seemingly hurtling toward financial ruin”, with “the looming specter of eventual bankruptcy” and that it was “worth zero”, pointing to the Soho House Group’s heavy reliance on borrowing, with $607 million of debt due to mature by 2027. The report received extensive coverage worldwide. (For example, see coverage in Bloomberg, City AM, Daily Mail, Daily Telegraph, Financial Times, New Statesman, New York Post, Tatler and The Times.) In response, Soho House argued that the GlassHouse report was poorly compiled, “contains factual inaccuracies, analytical errors, and false and misleading statements”, and demonstrated a poor understanding of the club sector. (My own view, for what it is worth, is that Soho House’s objections to the shortcomings in the GlassHouse report are fully borne out, and that it is a very poorly-researched and poorly-written document indeed, which has not merited the huge publicity it has drawn worldwide; but that does not, in itself, mean that the report’s overall conclusions about Soho House’s longer-term viability are necessarily wrong.) Soho House’s objection, that the Glasshouse report was “all designed to adversely impact the Company’s stock price for the benefit of the short-seller” seems fully vindicated, since that was exactly what happened next on the stock exchange.

Whatever one makes of the GlassHouse report, its criticisms of “Overcrowding concerns and a decline in service quality” seems to have struck a chord with both members and management, as the chain has sought profitability. Indeed, these are staples of the long-term criticisms of the chain - an example of wider cut-through can be seen in the “Soho House Memes” account which has been run on Instagram for the last six and a half years.

Soho House’s management seems to have attempted a response to such criticisms. Previously, the Group aimed to open 10 new houses a year, with an overall target of 85 houses; it has since revised this to just 3 new houses a year, and no stated target for the size of the Group, plus a renewed emphasis on quality control and reducing overcrowding. Soho House still refuses to disclose the number of members belonging to each house; but in response to the accusation that many of their 220,000 members worldwide are focused predominantly in a few houses in London, New York and Los Angeles, a year ago they announced they were freezing new recuitment on existing houses in these locations. (Although the Group’s website currently suggests they have now unfrozen applications again.)

The Soho House website currently suggests that applications have reopened to all branches, after the freeze announced on London, New York and Los Angeles branches in December 2023.

Additionally, a new Mayfair venue, Soho Mews House, opened last September, and only granted membership to applicants to that house - much to the annoyance of existing Soho House members who have paid for global “Every House” membership at £2,950 per year, which had been billed as giving them access to every house worldwide. The move is justified as a return to exclusivity for the chain.

Given that the Soho House Board accounts for a reported 74% of shares in the company, the support of Executive Chairman Ron Burkle means the chances of the sale going through are quite high - though by no means guaranteed. In those circumstances, 2025 could see the private members’ club chain returning to private ownership.