Permira checks out of Travelodge with £1bn sale

Permira, the private equity group, is putting the budget hotel group Travelodge up for sale with a price tag of around £1bn as it looks for a timely exit from its three-year investment.

Last week Permira held a beauty parade of potential advisers to arrange a sale or flotation of the business. A sale is thought to be the most likely scenario, easily the "cleanest exit" for a private-equity business, and also because the budget hotel chain is expected to attract a lot of bid interest. A float, which carries more risk, is seen as the least likely option. A management buyout is seen as a possibility.

If Permira decides to go for a sale, Whitbread, the leisure group that owns the larger rival Premier Travel Inn chain, is expected to throw its hat in the ring. Whitbread is understood to have already started work on a possible bid to take out its aggressive rival. Travelodge recently declared a price war on Premier Travel and aims to expand its 17,000 rooms, across 291 hotels, to 30,000 in the next three years. That compares with Whitbread's plans to increase Premier Travel's 30,000 rooms to 45,000 by 2011.

There has been great interest in hotel assets lately, with the hotels group de Vere receiving a £670m bid from the US private equity house Blackstone last week. Permira has also shown an interest in de Vere in the past.

A sale promises multi-million pound windfalls for Travelodge's management, led by Keith Hamill, the chairman, and Grant Hearn, the chief executive, who own large chunks of the business. Mr Hearn has in the past talked of leading a management buyout of the business, with backing from another private equity firm.

The investment banks Citigroup, Deutsche Bank and UBS are understood to have made presentations to Permira, which will appoint advisers in coming weeks.

The private equity firm bought Travelodge in January 2003 for £712m from the catering giant Compass. The acquisition also included the 235-strong Little Chef chain of roadside restaurants, of which about half were on sites shared with or near its budget hotels.

Last year Permira sold Little Chef for £52m to the catering entrepreneurs Lawrence Wosskow and Simon Heath, after shutting a number of struggling restaurant sites.