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The merger madness in the global travel industry is picking up pace as 2015 ends.
Here is sample of what has happened over the last few months: Expedia buys Homeaway, doubling down on its bet that its duopoly position in travel distribution even without an assured low cost of demand generation is sustainable. Priceline buys PriceMatch (revenue management and pricing software for hotels) and RocketMiles (frequency program for independent hotels). Accor rumored to be buying Fairmont/Raffles. Starwood announces intention to be bought (IHG and Wyndham seen as likely buyers). Marriott buys Delta Hotels (Canada). IHG itself rumored to be for sale (which the company denies). Amadeus continues to build its footprint in North America with itsHotelSystemsPro purchase (2,500+ hotel clients). On the small company side, Rainmaker Group purchases RevCaster (competitor price monitoring) and Solidus IQ (hotel performance analytics) to develop a 5,000+ hotel footprint in revenue generation services.
It’s not going to stop any time soon. Stock market is rife with rumors of an IHG takeover possibility. Expedia has run out of OTAs to buy and continues to try and delay participation in TripAdvisor Instant Booking, now telling us that it’s own Trivago version is way better for everyone. Without a fundamental change in strategy, it seems clear that the next major transaction for EXPE is to sell itself – now would be a good time. Amadeus is big enough to make this work and has the broadened scope of services to address Expedia’s monoline exposure issues. Perhaps Ctrip will decide to make a play, becoming a true rival to Priceline’s global dominance.
Priceline will continue to add adjacent services to increase its value add across the revenue generation spectrum. A pickup of Sabre would make this a perfect multi-sector rival to Amadeus and provide key success components such as a central reservation system to its service arsenal. Other targets might be Cvent, giving it a much needed entree into the Group/Meetings market or Travelclick, providing a Big Data platform with massive hotel reach, particularly in North America.
We don’t know who will buy Starwood, but here is what they will be getting: a collection of well-designed brands with small footprint (W Hotels, Aloft, Element, St Regis), the superb Westin brand, ideally positioned in the “value” segment of upper-upscale/luxury, and the Sheraton mega-brand family which has been in need of an expensive reboot for a long time. The buyer will also inherit a challenged corporate culture with jaded middle management and a faltering franchise sales system and inconsistent owner relations. Most analysts believe that combinations with IHG and Wyndham make the most sense as these provide a full spectrum of lodging offerings from mainstream/midscale to luxury. We are a bigger fan of the idea of a Hyatt takeover, creating an upscale powerhouse with strong global presence and a really attractive midscale contender brand, Hyatt Place.
Single-brand chains such as La Quinta, Red Roof Inns, and Red Lion are experiencing significant obstacles to system size growth. If the Sheraton refurb can create castoffs, La Quinta and Choice Hotels stand to pick up several hundred additional hotels but otherwise the new build prospects are limited. A combination of these companies might make a lot of sense. Throw in Extended Stay Hotels and you suddenly have a kind of “IHG-Lite” with a decent competitive offering that might become attractive to major corporate travel buyers.
Beyond this, there are about 400 independent travel services providers, mostly cloud-based software and service outsourcing businesses, which combined have a footprint of more than 30,000 hotels worldwide (individually ranging from a few hundred hotels to several thousand per company). These are well-positioned today for takeout and consolidation.
A winning strategy here is the old-school rollup play, building an annual-recurring-revenue + platform play that will fetch a multi-billion $$ price tag further down the road.
No matter what happens, things are going to stay interesting for a while.
(Note: We did not mention Google even once in this article. But we haven’t forgotten them either. Alphabet Hotel Services, anyone?)
Del Ross is the Managing Partner at Noctober Value Partners, a strategic advisory firm specializing in revenue generation for consumer-facing businesses. Previously he has served as the head of sales and marketing for InterContinental Hotels Group.