It's been a common refrain at hotel industry conferences for as long as I've been covering this industry: Things are too fragmented. There needs to be more mergers and acquisitions, especially among the biggest players, to achieve the same kind of size and power seen in the airlines.
The business case for that is obvious and transparent. Scale leads to efficiency and gives you more control over the competitive landscape.
I've heard how this makes sense for both hotel brands and institutional ownership groups such as real estate investment trusts more times than I can count. Yet wide-scale, industry-reshaping deals remain few and far between. Sure, Hyatt Hotels Corp. and Accor continued to buy up smaller players to grow strategically in the past few years. But it's not like there was a rush following the 2016 Marriott-Starwood deal for everyone to pair up like they don't want to be the last person looking for a lab partner.
And that underscores the simple point, that these deals are always easier in theory than in practice. Just look at the news of the past week and change with Choice Hotels International's very public pursuit of Wyndham Hotels & Resorts, followed immediately by Wyndham's equally public rejection.
Among the issues that you'd expect to hear from Wyndham — calling the deal undervalued and pushing back on the idea that another management team could do a better job growing the business than they can — concerns over antitrust and other regulatory hurdles are relatively new to the hotel industry. Despite people viewing it as a weakness, the fragmented nature of the hotel industry is what insulated mergers and acquisitions from the type of federal scrutiny Wyndham worries could kill a potential deal. But if hoteliers hope to operate more like the airlines, this is something they should grow more accustomed to. Just look at the yearslong saga between Spirit, Frontier and JetBlue.
And I think it's worthwhile for us all to remind ourselves just how important ego and perception are to all of these discussions, regardless of how skilled and calculating any individual company's management team might be. If someone showed up at your office tomorrow and insisted they could do your job better than you are currently, I don't think your first response would be to shake their hand and tell them they're correct.
That also plays into the concept of valuation. People are always talking about how much it makes sense for private equity players to come in and gobble up the hotel REITs, which we recently saw in KSL's purchase of Hersha Hospitality Trust, but it doesn't happen so often in part because REIT executives are always certain their portfolios are being undervalued by the market.
Maybe if the economy takes a real downward turn in the near future, that will be enough to overcome some of those concerns, but for the time being, things will remain more difficult than they seem from the outside.
Let me know what you think on Twitter, LinkedIn or via email.
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