What is a club deal? It is a transaction in which a small number of investors come together around one specific project, through an investment vehicle created for that project. It differs from a fund in that the investor knows from the outset which asset they are taking part in, and with what structure and business plan. In a fund, the investor entrusts capital to a manager who later decides which companies to invest in.
This article is general and informative in nature. It is not an offer or an investment recommendation: every transaction is assessed individually.
How a club deal works
The starting point is always an identified project. It might be the acquisition of a group of restaurants, the opening of a concept in a strategic location or the financing of a brand that wants to grow. Whoever promotes the transaction analyses the project, documents it and presents it to a small group of investors.
If the investors decide to take part, a company is set up specifically for that project. This is the investment vehicle: the entity the co-investors join, which in turn invests in the asset. The articles of association and the shareholders’ agreement set out how decisions are taken, what information each partner receives and on what terms an exit can take place.
Once the investment has closed, someone has to manage or oversee the asset. In hospitality this phase carries a lot of weight, because the outcome depends on the daily operation: team, costs, menu, site. The partners receive regular reporting on how the project is progressing.
How a private equity fund works
A fund gathers capital commitments from many investors before knowing which companies it will invest in. The manager has a defined investment policy (sector, size, geography, type of transaction) and, within it, decides which deals to do and when.
A fund investor delegates the selection. In return they get a portfolio of several holdings and a professional team dedicated to finding, analysing and managing them. Funds have their own regulatory regime, a fee structure and a lifespan agreed at the outset.
Differences between a club deal and a fund for the investor
Visibility of the asset. In a club deal the investor knows the specific project before committing capital: the asset, the structure and the business plan. In a fund they decide on the manager and its strategy, and get to know the holdings as they are added.
Project-by-project decisions. The co-investor in a club deal chooses each transaction. They can join one and sit out the next. The fund investor accepts whatever portfolio the manager builds within the agreed policy.
Concentration versus diversification. A club deal usually concentrates the investment in a single asset or a small group of related assets. A fund spreads capital across several companies. Concentration gives more visibility and also more exposure to whatever happens in that project.
Relationship with the asset manager. In a club deal the group of partners is small, which makes for a more direct relationship with whoever manages or oversees the asset. In a fund, the investor’s relationship is with the management company.
Liquidity. Neither format tends to offer a quick exit. In both cases the investment is in unlisted companies, and the exit depends on a sale of the asset, a buy-back or whatever the shareholders’ agreement provides for.
Why the club deal suits hospitality and F&B
Many hospitality and food and beverage projects do not fit the criteria of a conventional fund. Some are too small for the fund’s minimum ticket; others are too distinctive for its investment policy. Think of a concept with a very defined proposition, an opening in a location that cannot be repeated, or a brand that is starting to expand.
For projects like these, a club deal brings together investors with a genuine interest in the sector around one specific transaction. The investor can assess the asset against their own criteria and decide with full information.
In this sector the financial structure is only part of the outcome. These are businesses with tight margins, high operational intensity and a heavy reliance on brand. That is why it matters who analyses the project before presenting it and who supports the management afterwards. At Link Capital we advise on identifying the project and designing the structure, and we provide the operational backing of Linkers, a hospitality consultancy with projects in Europe, Africa, Latin America and the Middle East. You can see how we approach these transactions on our club deals in hospitality and F&B page.
What to review before joining a club deal
Before deciding, these questions help to organise the analysis:
- The asset. Exactly what is being bought or financed, what condition it is in and which assumptions underpin the business plan.
- The prior analysis. Whether operational and financial due diligence has been carried out and what it concludes, including the weak points.
- The structure of the vehicle. What type of company it is, who takes part, how voting rights are distributed and what majorities are required for significant decisions.
- The shareholders’ agreement. How additional contributions, the admission of new partners, transfer restrictions and exit scenarios are regulated.
- Management of the asset. Who manages or oversees it, with what experience in the sector and with what incentives.
- Reporting. What information you will receive, how often and against which indicators.
- The exit. Which divestment routes the plan contemplates and what happens if they do not materialise within the expected horizon.
- Fit with your wealth. What weight this investment would have in your overall holdings and how much illiquidity you can take on.
It is worth reviewing the documentation with your own legal, tax and financial advisers, rather than relying solely on the promoter’s presentation.
Risks to keep in mind
Investing in unlisted companies carries risks, including the loss of the capital invested and a lack of liquidity. In a club deal, concentration in a single project means its performance depends on specific factors: execution of the plan, how the site performs, the team and the brand. Visibility of the asset helps you understand those risks; it does not remove them.
Any transaction must be presented individually, fully documented and subject to case-by-case analysis. No general information, such as that in this article, replaces that analysis.
Speak with a partner
If you would like to understand in more detail how a co-investment vehicle in hospitality is structured, you can request a meeting with a Link Capital partner. All information is treated in the strictest confidence and we will reply within two working days.