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Soho hum

15 November 2019 By Neil Unmack

Soho House offers a high-end counterpoint to the WeWork fiasco. The fast-expanding but loss-making members’ club has raised capital valuing it at over $2 billion, including debt. The heady price tag only makes sense if Soho House can keep growing without sacrificing its exclusive appeal.

Soho House founder Nick Jones is an avowed admirer of WeWork. It’s an awkward role model. The office lessor claimed to disrupt the office property sector by appealing to a new community of hip customers, but struggled to fund its growth or justify its sky-high valuation. After a failed stock market offering, it was bailed out by major investor SoftBank Group last month.

Soho House, which offers access to 27 venues such as London’s trendy Shoreditch House for up to 1,650 pounds a year, boasts a community of over 89,000 vetted members. At least 36,000 are waiting in line to join.

Founded in the London district of the same name in 1995, Soho House is expanding rapidly, opening new clubs in places like Mykonos, Mumbai, Nashville and Brighton. But its relatively thin operating margin and high borrowing costs mean it needs external capital. A recent $100 million equity injection will keep the company going through 2021, and values it at $2.4 billion including debt. That’s a staggering 34 times Soho House’s 2018 EBITDA of 56 million pounds ($72 million).

The valuation could make sense, though. As it expands, the business should become more profitable. Older venues tend to make more money, while a bigger network allows the group to offer more lucrative subscription services, including a membership that people who don’t live near a club can use when travelling. Assume Soho House can keep growing its revenue at the 21% annual rate it has delivered since 2016, while boosting its EBITDA margin to 17%, from 13% last year. EBITDA would reach $168 million by 2021, giving an enterprise value multiple of less than 15 times – in line with hoteliers like Marriott International.

A bigger network boosts Soho House’s appeal to affluent jet-setters who know they can find a club wherever they travel. Yet its reputation as a hub for trendy, creative types may be diluted. WeWork struggled to convert its overhyped “community” into a profitable business. Soho House will be hoping its members prove more lucrative.


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