BERLIN—Marriott International is working to close a deal for Starwood Hotels & Resorts. Not long ago, Marriott bought Delta Hotels & Resorts. AccorHotels is buying FHRI Hotels & Resorts. Minor Hotel Group bought Tivoli Hotels & Resorts. A Thai-consortium bought Jupiter Hotels Limited, and HK CTS Metropark Hotels Company bought fellow white-label Kew Green.
Those six deals helped make 2015 an active year for global hotel transactions. But that’s all last year.
At the 19th International Hotel Investment Forum held at the InterContinental Berlin between 7 to 9 March, hotelier sources said those deals now must be followed up with the hard work of making sure those deals were not just vanity projects but solid examples of how scale, consolidation and distribution translate into return on investment.
At the conference itself, only one deal came to light, when Rezidor Hotel Group agreed to spend €14.7 million ($16.1 million) to acquire a 49% stake in German budget hotel company Prizeotel, which has three properties in Germany and another in the pipeline. The deal allows Rezidor to scoop up the remaining 51% in four years’ time.
Hoteliers speaking at IHIF panels discussed the internal workings of these deals and how scale mattered today in terms of five major advantages:
- Accelerated global growth;
- Larger loyalty programs;
- Leveraging operating efficiencies;
- Owner/franchisee performance and preference, and
- Reducing distribution costs.
At a panel titled “Hunter vs. Hunted,” moderator Tony Ryan, managing director, global mergers and acquisitions, hotels and hospitality group, JLL, said the last 12 months had shown the “hotel industry is a serious business involving scale.”
Perspective on Marriott-Starwood
“Previously, what (Marriott International has) been doing is bolt-on deals, such as AC (Hotels) in Spain, Protea in South Africa, Delta in Canada – geographical plays, and all at roughly 10 times (earnings before interest, tax, depreciation and amortization), but the Starwood deal is different. It’s transformative,” said Rick Hoffman, EVP, mergers, acquisitions and business development, Marriott International.
Hoffman said Marriott’s Starwood deal is built around that need for scale and to offset certain external threats.
“Scale does matter, increasingly so, with increasing threats from non-hospitality sources. … We see bigger threats come down the pike, not (online travel agencies) so much as things we never talk about, the Googles, et cetera,” Hoffman added.
But now the buy has to work, he said
“We’ve always liked what Starwood is,” Hoffman said. “It is not about them having too many brands, but good ones, and we see some of their brands as good accelerators. There are synergies, too, savings of $200 million plus, which makes the transaction cost all the more attractive. … Then there is loyalty, which separates the large brands from the others.”
Hoffman said when the deal is completed, the combined entity will have 14% of the market. Ryan said that number isn’t high enough to concern regulatory bodies, especially compared to industries that have much more market share owned by a handful of companies such as car rentals, cruise lines, tobacco, soft drinks and beer.
“I believe when Four Seasons was bought (in 2007) that came in at 24 times EBITDA, so 20 (for Starwood) is high but a good price,” Hoffman said.
Hoffman believes the greatest risk going forward is to medium-sized hotel companies, not larger or smaller ones.
“That is, unless you are quirky, some of which want to incubate themselves and then be bought,” Hoffman added
The other mega deal of 2015
Also well-documented, AccorHotels’ decision to buy FRHI was largely due to the Fairmont, Raffles and Swissôtel brands satisfying gaps in the French company’s portfolio, especially in North America.
Nicolas Broussaud, AccorHotels’ head of transactions, said another factor in the buy was the caliber of employees the deal came with.
“We were feeling the gap in the luxury end,” Broussaud said. “We bought a portfolio of locations with Fairmont in the United States that are very difficult to come by, in the top 25 markets.”
Matthieu Evrard, chief development officer for France’s Louvre Hotels Group, discussed how his company has changed since Jin Jiang bought it in November 2014. In late February, Jin Jiang also upped its stake in AccorHotels through subsidiaries to 11.7%, which translates into 10.2% of voting rights.
Evrard said Louvre had moved from being hunted to being the hunter.
“Everyone was looking at us, private equity, even competitors,” he said.
Evrard added that the deal with Jin Jiang also was political, with the Chinese company desiring European knowledge in China on branding and management.
“We are spending time with directors in China of its different verticals, perhaps retail,” Evrard said.
“In the mid-tier sector in China, it’s pretty clear no Western hotel company is going to come in and develop 1,000 hotels. It’s all about finding the right partners,” Hoffman said.
Now the work begins
The hoteliers hinted the easy part of their deals was writing the checks. Now the pressure is on to must sure they all work.
“This will not be successful if we cannot deliver the synergies for our owners,” Hoffman said. “We can show we have driven down the cost of distribution every year, although that is not the goal, which is to make (the combined company) bigger. That will come about not just because of the M&A.”
Hoffman underlined his company and AccorHotels paid mostly stock in their deals.
“Stock is relative to the value, so the multiple is really a function of how many shares you issue. If the combined stock value is worth more, then the multiple is neither here nor there. You try and optimize your capital allocation. The way we did it might allow us to buy back stock. We’ll get the right amount of cash in it by leveraging and organizing our balance sheet,” Hoffman said.
Broussaud said another key to success was to look at loyalty differently to how you look at distribution. He also said AccorHotels would have loved to have done the Starwood deal.
“If you think if there are any companies who should have been more aggressive than (Marriott International) in terms of the Starwood deal, you would have said (InterContinental Hotels Group) and AccorHotels,” Hoffman said.