After losing 99% of its value, hospitality company Selina receives $20 million lifeline from Osprey Investments
After losing 99% of its value, hospitality company Selina receives $20 million lifeline from Osprey Investments
Assuming that the agreement is completed, and that Osprey converts the debt into shares and exercises the options for further investment, it will become the controlling owner of Selina
Hospitality company Selina has announced an investment agreement in principle that would see it receive up to $68 million from Osprey Investments.
According to the agreement, Osprey will immediately invest $20 million in exchange for Selina shares, and another $8 million over the coming year, subject to further shareholder approval for the issuance of ordinary shares required for elements of the transaction. In addition, approximately $8.7 million of indebtedness held by (or to be assumed by) Osprey, including $4.7 million of 2026 Notes and $4.0 million of the Initial Osprey Notes, would be converted into equity and Selina would be required to invest $4.0 million into FutureLearn, a British digital education platform that provides online courses, microcredentials and other degrees, which is owned by Osprey affiliate, Global University Systems, an online education platform.
Assuming that the agreement is completed, and that Osprey converts the debt into shares and exercises the options for further investment, it will become the controlling owner of Selina, leaving its founders, CEO Rafi Museri and Daniel Rudasevski, with the possession of only a few percent of the company.
Osprey previously invested $15.6 million via convertible secured promissory notes entered into in June and July 2023.
The new investment remains subject to finalization and execution of definitive agreements and is contingent on the successful completion of a restructuring of at least 80% of the $147.5 million principal amount of 6.00% Convertible Senior Notes due 2026.
The arrangements also provide for an optional third tranche of funding that includes up to $20.0 million from GUS within a period of 12 months from closing, with the holders of the 2026 Notes that participate in the Note Restructuring having a right to participate, and up to an additional $20.0 million from certain other parties, which additional investment is anticipated to occur within 30 days after the closing of the transaction.
The current move is the latest in a series of aggressive steps taken by Selina due to its precarious financial situation. Founded in 2014, Selina has recorded losses every year since its inception, and these include a loss of $198 million in 2022, a loss of $186 million in 2021 and a loss of $139 million in 2020. In its reports for the first half of 2023, Selina reported a loss of $46 million, a reduction of about 50% compared to the corresponding period.
The company currently rents and operates 114 guesthouses. In 2018 and 2019, the company opened 24 new sites each year, in 2020 it opened 17 sites, 20 were opened in 2021 and in 2022 it opened 18 new sites - an average of a new hotel every 17 days in the last five years. In a conversation with Calcalist, Museri explained that this is about 900 new hotel rooms per year, growth which he defined as "slow" in relation to the hotel market.
This may be true, although hotel chains have historically started off with organic growth, usually acquiring hotels in single digit numbers, at a slow pace every few years, while slowly establishing a global brand and operating in a profit-oriented model. This, compared to the business model that operated at a loss for Selina, which was based on growth and with the aim of establishing a global brand, and only then focusing on turning a profit.
During the boom period in the high-tech sector, Selina took advantage of the sharp value increases in the market and the trend of SPAC mergers, and at the end of 2022 completed a merger with a SPAC. In its first days of trading, its share price jumped from $10 to $40.9 and Selina's value soared to $1.2 billion, but this didn't last long. With the interest rate hikes in the world, the bubbles of the tech and SPAC sectors burst, and companies like Selina, which operate traditional businesses while donning a start-up business model, got burned. Accordingly, since Selina went public, its stock has crashed by 99%, and it is currently trading for only $0.2, with a market cap of just $19 million, which pales in comparison to the capital and debt it has raised so far, which is over $300 million.
Selina has become a sort of poster child for a company that got carried away by attractive market conditions in contradiction to its type of activity, and has been compared more than once to WeWork. To avoid a similar fate (of bankruptcy) Selina acted aggressively to reduce costs. In the past year, the company laid off 350 employees worldwide, closed five hotels and made cuts at the headquarters. Sources at the company explain that they will continue to close hotels that they recognize will not reach profitability in their foreseeable future, with the aim of moving as quickly as possible to a net profit. However, all these did not help to restore its share price, and in September Selina received a warning from Nasdaq, that if its price does not rise above one dollar by March 6, 2024, it will be deleted from trading on the stock exchange.
The importance of the lifeline obtained by Selina cannot be underestimated, but this is not the whole story. While large investors negotiated the debt they were owed, keeping communication channels open, small creditors were ignored. Thus, while it worked aggressively to grow, open new sites and establish a world-renowned brand, small suppliers, at least in Israel, paid the price.
Calcalist spoke with about a dozen small suppliers who expressed continuous frustration with their work with Selina, including poor payment ethics and poor communication, not to mention non-existent at times. Some of them found themselves without a way out and filed lawsuits in an effort to return money that the chain owed them.
Selina's story reminds us that many times behind startups with big dreams are small, healthy businesses that get into trouble because of companies that are fueled by big money from the venture capital industry. For example, a small laundry from Mitzpe Ramon that has tried unsuccessfully to get Selina, the owner of the global brand, to pay NIS 140,000; Or a security company from the north that Selina owes about NIS 11,000 for services it received; A local bakery that supplied Selena with products worth NIS 33,000 for months, for which the chain has not yet paid; A gas technician from the north to whom Selina owes NIS 35,000; A company that sells agricultural produce to Selina who is owed NIS 33,000; A business that rented Selina three ice cream trucks that accumulated a debt of NIS 190,000; A printing house to which Selina owes NIS 70,000; Or 28,000 shekels that Selina has not yet transferred from a fundraising party for a project "to raise awareness of military post-trauma".
Some of the suppliers filed lawsuits, some of them, who have already sued, said that they believe they are on the verge of settling the payment. Some stated that they had heard that the company was in a "mess", and others claimed that Selina never responded to their repeated inquiries. Some of the suppliers emphasized the payment ethics in Israel which allows the postponement of payment to suppliers as a contributor to the current situation. But the question hovering around everyone is why a company that opens hotels around the world at a rapid pace is unable to pay the smallest suppliers - on time or at all.
In a conversation with Calcalist, Selina explained that the company's activity in Israel, which accounts for about 14% of the company's total activity, managed to become profitable about six months before the outbreak of the war. Selina also added that they are working "to reach an agreement with a few suppliers with whom there is a gap".
This week, Selina published a letter to suppliers, in which it was written that "against the background of the war, Selina Israel opened its doors to evacuees from the south and the north... without clear knowledge about the source of the payment." The company added that "the dealing with cash handling is nationwide and we are also dealing with customer debts that have not yet been paid to us due to the situation." However, according to documents obtained by Calcalist it appears that the debts in question of the small suppliers were accumulated many months before the war, as well as the lawsuits that were filed.
