Editor's note: This is the first article in a CoStar News Hotels series documenting how the 2016 acquisition of Starwood Hotels & Resorts Worldwide by Marriott International changed how major hotel companies and their stakeholders view growth.
When Marriott International closed on its acquisition of Starwood Hotels & Resorts Worldwide in September 2016, a new era began for global hotel franchise companies, one defined by meteoric growth and competition for guest loyalty, all in a Wall Street pressure cooker.
Now, 10 years later, when Marriott and its global hotel brand competitors have transitioned away from real estate ownership and are rooted firmly in the franchise and loyalty space, we ask the question: Why is bigger better, and how did this landmark deal change the industry?
Tony Capuano, Marriott president and CEO, was chief development officer of the company when the $13.3 billion-dollar deal closed in 2016. For him, the past decade has been a powerful illustration of the importance of scale as the engine that drives returns to hotel owners and satisfaction to travelers.
“Building these loyalty ecosystems and trying to make these systems as sticky as possible, doing everything in your power to pull members into these ecosystems and keep them in there ... is critically important,” he said in an interview with CoStar News Hotels.
He acknowledged the way Marriott's competitors also have grown their portfolios in the last decade to chase scale through creating new brands and buying up existing ones.
“I think the Starwood transaction illustrated the power of these broader brand portfolios,” he said.
Often called "The Mount Rushmore of hotel deals" for the way it brought so many recognizable hotel brands under one parent company, the Marriott-Starwood deal definitely put scale in the spotlight, Simon Turner told CoStar News Hotels. Turner was Capuano's counterpart at Starwood in 2015 and 2016 as the deal was progressing.
Turner, the founder of Alpha Lodging and former president of global development for Starwood, said global scale matters more than ever in the hotel business.
“While there are any number of really, really interesting niche brands, at the end of the day this is a business that has consolidated,” he said. “In all likelihood, it will continue to consolidate because global scale matters.”
Chasing scale
In an industry where the big names — Marriott, Hilton, IHG Hotels & Resorts, Hyatt Hotels Corp. and so on — have largely shed their owned real estate portfolios — scale is a critical means by which they can return value to the people and companies who do own the real estate.
For a hotel brand company, scale means bigger and more efficient — and cost-effective — operations. That applies to distribution, sales and marketing, revenue management, loyalty programs and every system that powers a hotel and the guests who stay there.
In the global hotel brand game, the consensus is that Marriott is winning on this front.
“These hotel brand businesses are good, very good businesses, and there’s a flywheel component to it,” said Mike Bellisario, senior research analyst and managing director at Baird. Acquiring Starwood “made the Marriott flywheel spin faster,” he said.
Hotel franchising is a business where one plus one is greater than two, Bellisario said. As these companies get larger, they arguably can grow faster. As highly asset-light and mostly publicly traded companies, firms such as Marriott, Hilton and their peers grow by selling hotel franchises to owners and collecting fees. Owner economics improve when brands plant more flags and loyal guests return, and developers are then more likely to put a shovel in the ground to build a new hotel under that brand flag. Wall Street rewards net unit growth, and the cycle continues.
Think about it from a loyalty program standpoint: Travelers loyal to a hotel brand will stay with the brand more often and therefore spend more. Add in a credit card affiliated with the loyalty program and they spend and stay even more. All of this adds up to more money for the franchise company.
Franchise companies with a lot of brand options gain scale even faster, Bellisario said.
“When [new] hotels open, you and I as travelers have another option to stay at, another brand, another chain scale, another market. Therefore we stay more often, we spend more. Rinse and repeat,” he said.
So growth leads to even more growth. But even an industry as friendly as hospitality is rife with competition, so when one company gets bigger, the others have a choice: Try to keep up or fall behind.
Marriott pulled ahead by buying Starwood, and the other brands followed right along.
“You’re going to continue to see these sorts of things because it’s very, very hard to compete if you don’t have the scale and the loyalty program and the distribution system that one of the big players has,” Turner said.
The ripple effect
When Marriott closed on its acquisition of Starwood, it gained the company’s stable of brands, portfolio of operating hotels, development pipeline, loyalty program membership, handful of owned hotels and more.
According to Marriott’s second-quarter 2016 earnings report, the last one before the deal closed, Marriott had 4,494 properties open with 764,513 rooms before the deal. It had 1,762 hotels and more than 285,000 rooms in its pipeline. It had 19 brands, and its Marriott Rewards and Ritz-Carlton Rewards loyalty programs combined had more than 57 million members.
On Sept. 23, 2016, closing day, Marriott reported it had more than 5,700 properties with 1.1 million rooms in operation. It now had 30 brands from “moderate-tier” to luxury, and in its third-quarter earnings report for 2016, it boasted a development pipeline of 2,454 properties and nearly 420,000 rooms.
The two legacy Marriott loyalty programs plus the newly added Starwood Preferred Guest program had 85 million members together.
By comparison, Hilton, Marriott’s closest competitor by portfolio size, reported 4,680 hotels with 768,221 rooms open and operating during the second quarter of 2016. It had a pipeline of 1,822 hotels with 288,000 rooms in development. The Hilton Honors program had more than 55 million members.
For the third quarter of 2016, Hilton reported 4,774 hotels with 781,272 rooms open with a pipeline of 1,898 properties with roughly 300,000 rooms under development. It had about 58 million loyalty members.
From the day the acquisition closed, Marriott has led the pack in open hotel rooms, even as the company endured challenges along the way, including a major data breach that resulted from buying Starwood, and the COVID-19 pandemic. Most notable was the February 2021 death of the deal's architect, Marriott's then-president and CEO Arne Sorenson. Capuano took the role upon Sorenson's death, initially as co-president alongside Stephanie Linnartz, who left the company in late 2022 to lead Under Armour.
Bellisario said he ranks the global hotel brand leaders today as Marriott in the 1A position and Hilton in 1B. The other major franchise companies fall in behind those two.
Marriott had a strong offensive component to buying Starwood — the move immediately vaulted Marriott into the No. 1 spot of guestrooms open. But there was a defensive component as well.
”If Marriott didn’t do it, Hyatt was right there,” Bellisario said. “And if Hyatt had acquired Starwood, you could argue it would be 1A, 1B and 1C in terms of competitors, brand positioning, size, scale, distribution.”
The biggest thing that changed after Marriott bought Starwood is that Marriott was now head and shoulders above everyone else, making it a two-horse race in the U.S., he said.
The acquisition set the tone that bigger is better, said Patrick Scholes, managing director of lodging and leisure equity research at Truist Securities.
“I don’t call it a land grab, but I call it a brand grab,” he said.
Since then, other hotel franchise companies have made significant acquisitions to add brands — notably, Accor's 2016 buy of FRHI, Hyatt's 2021 purchase of Apple Leisure Group, Wyndham Hotel Group's 2018 deal to buy La Quinta — but none have come close to the scope of the Marriott-Starwood deal.
At the time of the deal, hoteliers across the industry questioned whether Marriott would keep all of the now-30 brands it had in its portfolio. Today, Marriott has nearly 40 brands and multiple other companies have over 30 as well.
So it was and remains the biggest hotel brand company deal in contemporary times, but it's not the only one.
Before Marriott-Starwood, the landmark hotel company acquisition was Hilton Hotels Corp's 1999 buy of Promus Hotel Corporation for $3.1 billion in cash and stock.
That deal was a brand grab of sorts as well, bringing the Hampton, Embassy Suites, Homewood Suites and DoubleTree brands to Hilton, whose brands at the time included Hilton Hotels & Resorts, Hilton Garden Inn and Conrad International.
Fast-forward nearly 30 years and it's a consolidated hospitality industry now, Scholes said. Smaller hotel brand companies are players in the game, he said, but they’re peripheral to a degree, and the Marriotts, Hiltons and Hyatts of the world look at them as acquisition opportunities.
While the Hilton-Promus deal jump-started brand consolidation at the time, the Marriott-Starwood deal served as the starting gun in the larger global race to grow net units and appeal to more and more owners, developers, and guests with the perks and benefits of size.
But because growth begets more growth, there is always expectation for more. There’s a lot of pressure on franchise companies from Wall Street, industry analysts, financial media and shareholders to keep growing. Listen to any earnings call with analysts and you’ll hear hotel company CEOs bragging about the golden metric — net unit growth. More rooms means more fees for the franchise company and more gains for the owner.
This is why franchise companies launch new brands, which open doors to different guests and different locations. But growth at the rate Wall Street expects is not easy.
“There’s only so much you can grow organically, and you’ve got to buy something,” Scholes said. “There’s a lot of pressure to get it done, get the deal done, hit your numbers.”
When the numbers don’t grow as hoped, the stock prices take a beating, he said. That can lead to companies rushing things and perhaps not doing their full due diligence in evaluating deals.
The loyalty game
Though Marriott provided a push to other hotel brand companies to grow their brand portfolios, they were headed in that direction anyway, Bellisario said. The takeaway, and even to a degree the accelerant, is that it all comes back to loyalty.
“There is one brand: It’s Bonvoy,” he said.
Marriott has nearly 40 distinct hotel brands, but its one brand to rule them all is its loyalty program Bonvoy, Bellisario said. It’s the same for Hilton with Hilton Honors.
“They can tell you there’s different swim lanes, there’s different customer profiles and segments,” he said. “Yeah, to a degree, but when push comes to shove, the vast majority of travelers don’t really care if they’re staying in an Edition or a Ritz-Carlton, or a Courtyard or SpringHill.”
Guests stay at the hotels because of loyalty, Bellisario said. Last year, the overwhelming majority, 68%, of Marriott’s room nights came from loyalty members. They’re either earning or redeeming.
This is the goal all of the brand companies are moving toward, he said. Again, bigger is better, and they have all realized this and invested in it.
Look at the role Starwood’s loyalty program — Starwood Preferred Guest — played in Marriott’s deal.
At the time of the deal, Starwood Preferred Guest had topped the lists of world’s best loyalty programs more than any other hotel company, and its members were vocal about generous points and perks. Getting these members into its own program was a real feather in Marriott’s cap, Bellisario said. He called it a catalyst, adding millions of loyalty programs to Marriott’s own pre-Bonvoy loyalty program — called Marriott Rewards — at the time.
But Capuano said that convincing loyal members of one popular program to join another would not be easy.
SPG had a fiercely loyal and passionate member base, Capuano said. They loved the program and the portfolio, and Marriott's team knew members would understandably be trepidatious about what a combined platform would look like.
The thesis was that if Marriott could bring these two portfolios and groups of loyalty members together, then the sheer size — and yes, scale again — of a combined program could offer members so many more options.
"And as we sit here a decade later, that thesis has largely been proven out," Capuano said.
Marriott launched the combined programs in 2017 under the Bonvoy name with a big splash, as though to say this is a new brand, a new combined company and name. Today, Bonvoy counts more than 300 million members.
Capuano pointed out that hotel loyalty programs in their earlier days were fairly rudimentary and based only on points accrual. And while that component remains foundational to most programs, he said the evolution of rewarding members with exclusive experiences and redemptions on items other than just hotel stays has made Bonvoy a brand its members appreciate.
"I think the scale of the program and how that scale translates into the access that our members have to these really unique experiences has further strengthened the passion and the loyalty that our members have," he said.
Hotel loyalty programs also now play very closely with branded credit cards, Scholes said. In the last two years, the hospitality industry has seen credit card fees go up and up, and hotels now are pushing back because they see how well franchise companies like Marriott do with credit card fees.
This revenue channel has grown larger as the branded credit card footprint has increased, he said.
"That’s a big driver of earnings,” Scholes said. “That probably would not have happened to the degree that we’re seeing it today without these massive scales of global size.”
A group of 51 hotel owners who have more than 1,000 Marriott-branded hotels among them wrote a letter in March to Marriott executives, arguing they should receive a larger portion of the fees-associated revenue.
During Marriott's second-quarter earnings call, Capuano told analysts he wasn't going to provide an official response as it was a "matter between us and our owners."
Capuano said the company's success is closely tied to that of its hotel owners and franchisee community.
“Given our asset-light model, we continue to work every day to address issues, concerns and opportunities with the broader franchisee community around the world,” he said. “And those discussions have gone on for decades, and will continue to go on for decades.”
What’s next?
Capuano said the big global brand companies will continue in their efforts to have the right brand offerings at different quality tiers that play well in the markets where they want to be.
He cited Marriott's move into the midscale segment in recent years through its acquisition of the City Express brand and the launch of a new brand, StudioRes.
Marriott already has more than 500 hotels open or in the pipeline of the midscale segment, he said.
“That is not growth for growth’s sake,” he said. “That is recognition that there is a large pool of the traveling public that continues to prioritize both business and leisure travel but really desire opportunities that are more economical.”
And new guests mean new loyalty program prospects, keeping the cycle turning.
Franchise companies, Marriott included, will continue to add more hotel brands one or two at a time, Turner predicted — much easier to do than another huge acquisition that matches the scope of Marriott-Starwood.
And it’s inevitable that at some point a third dominant player will emerge to nip at the heels of Marriott and Hilton, he said. The big questions to answer are who that will be, when it will happen and how.
“At some point, it has to occur,” Turner said. “Not sure when, not sure how, but it needs to, because there needs to be more than two big, global players.”
But another large acquisition might be tougher than it sounds, given today’s highly consolidated hotel environment.
The hotel industry watched in late 2023 through early 2024 as Choice Hotels International tried to buy Wyndham Hotels & Resorts, first through the traditional approach of making an offer to Wyndham’s board of directors and, when that was rejected, through an appeal to shareholders. Choice abandoned its $7.8 billion takeover bid of Wyndham in March 2024.
Had Choice succeeded in winning over Wyndham’s board or shareholders, it would have faced some regulatory challenges as there would have been monopoly concerns given that both companies had a high concentration of hotels in the economy and midscale segments, Scholes said.
“There is definitely some question whether Choice-Wyndham would pass muster,” he said.
Another obstacle to one major brand company buying another is the appetite of the buyer and the willingness of the seller, Bellisario said.
“On paper, something might look good, but who wants to give up control?” he said.
For higher-end brands, the challenge is in the valuation, Bellisario said. Four Seasons Hotels and Resorts — which is not actually up for sale — if sold, wouldn’t sell for 15x earnings before interest, taxes, depreciation and amortization. It would probably sell for 50x EBITDA.
“That math will never pencil for a publicly traded company,” he said.
In reality, there may not be any more large companies left that could be acquisition targets, like they were in the era of the Marriott-Starwood deal, Bellisario said. Instead, the landscape is more ripe for targeted tuck-in deals in the $100 million to $500 million range that help companies fill holes in their portfolios.
Franchise companies also are using partnerships more and more to accomplish unit growth through distribution affiliation.
Take Hilton for example: In recent years, the global franchise giant added units through organic growth (launching the Spark and LivSmart Studios brands), acquisition (buying Graduate Hotels) and partnerships (affiliating with AutoCamp and Small Luxury Hotels of the World).
Today, the biggest opportunities major hotel brand companies have for growth is outside of the U.S. and North America at large, Bellisario said. Growing middle-class populations are traveling more, and there's also a higher percentage of independent hotels outside the U.S. that are ripe for conversion to a brand.
At the end of the day, there are only so many big hotel brand companies that can move the industry needle the way Marriott did when it bought Starwood, he said. Add in the fact that buyer-seller dynamics and monopoly concerns have to be overcome, and it makes a deal like this one less likely.
Even so, companies in pursuit have to play the game, because if Company A doesn’t end up buying Company B, Company C might.
“Every deal in hindsight is more important, because if you didn't do it, someone else would have done it and then there's one less left for you,” Bellisario said.