RoomsHotels

What’s Behind the Rise of Chinese Investors in Western Hospitality Companies?

Skift Take

Even with rumours circulating of an overseas spending clampdown, it looks like Chinese investors will continue to play a big role in the shape of the global hospitality industry in 2017.

— Patrick Whyte

The onset of an economic slowdown in China does not seem to have dampened the country’s appetite for foreign investment – especially in the hospitality sector.

This year the hotel industry has seen once again just how popular it is with investors from the country who appear keen to branch out from their home market.

In the last twelve months alone, insurance company Anbang and conglomerate HNA Group have both spent billions of dollars doing a number of deals.

The outlays are on top of other purchases, which taken together have given Chinese investors stakes in a swathe of hotel groups.

Anbang, which dropped out of an attempt to buy Starwood Hotels and Resorts, splashed out almost $6.5 billion to buy most of Strategic Hotels & Resorts  from Blackstone.

HNA Group has had an even busier year. The Haikou-based company completed the acquisition of Carlson Hotels, which includes a 50.2 percent stake in Rezidor Hotels Group, while it also bought 25 percent of Hilton Worldwide.

Since the closure of the Carlson Hotels deal, HNA Group has made an offer to buy-out the remaining Rezidor Hotels Group shareholders.

HNA Group also owns 29.5 percent and is the single largest shareholder in Spanish hotel chain NH Hotel Group.

Another Chinese tourism group, Jin Jiang has built up a sizeable position in Europe’s largest hotels group, AccorHotels and also owns another French chain Louvre Hotels Group.

The amount of M&A activity in the European hospitality sector led by Chinese firms shows just how much of an interest they are taking in the sector.

“The Chinese have been quite busy in general not just in Europe. We’ve seen a lot of investments or attempts at investment in the US as well,” said Wouter Geerts a travel analyst at market research firm Euromonitor International.

Why the interest?

While China’s economic growth over the past few decades means they can afford to go toe-to-toe with private equity firms and institutional investors from Europe and the U.S., the reasons why they are choosing to invest are less obvious.

For Andre Juillard a leisure analyst at financial services firm Kepler Cheuvreux, there are several key motivations behind the increase in activity.

“What we’re seeing is that they [Chinese investors] want to build market share and they want to develop: one, their portfolios to become more international; two, their brands for recognition; and three, they want to acquire know-how,” he told Skift.

According to Geerts the reason for investing abroad also comes down to fewer opportunities in the local market.

“On the one hand it shows that Chinese investors are looking to broaden their portfolios and make sure that they have less exposure to their local market. Especially with the Chinese downturn, which had a bit of an impact so having more [of a] spread of portfolio is good for them,” he said.

“Also, there has been… a lack of good investment opportunities in China itself because there are just no big brands at the moment that are up for sale or up for investment. I think that’s also one of the issues.”

China is the world’s largest outbound tourism market and according to the UNWTO, the country has registered “double-digit growth in tourism expenditure every year since 2004, benefitting Asian destinations such as Japan and Thailand as well as the United States and various European destinations.”

Chinese travelers spent an incredible $292 billion in 2015, making up almost a quarter of the entire market. But why might this lead Chinese companies to invest in the hospitality industry?

“The backdrop to this is there is broadly a significant drive from China to access brands particularly those that are already well established and enjoy a very high profile,” said Nick van Marken, who heads up the International Travel, Hospitality & Leisure advisory practice at accountancy firm Deloitte.

“I think that’s driven really by several factors but amongst them are obvious projection of Chinese power and outbound Chinese investment, and investment in most sectors apart from those that are obviously strategic or sensitive is seen as part of this.”

“When Chinese guests arrive in these cities they know these hotels are owned by Chinese companies there’s a natural affinity to use them. That’s not unusual or particularly new, we saw that with Japanese ownership, we saw that with Middle Eastern ownership, and we saw that with Asian ownership.

“You only have to go into hotels owned by any of those categories of buyers… and you will very often see a propensity for those hotels to be frequented by guests from those areas, those regions. There is some underlying logic to this beyond the ownership and the real estate and beyond the access to the brand.”

Geerts also believes that the Chinese investors are likely to have an eye on outbound tourism.

“Travel behaviour is changing within China and Chinese travellers are starting to travel more internationally and so I think for Chinese investors it’s very interesting to capture some of that market because they obviously expect that more and more Chinese will start to travel internationally and they’ll start to use certain hotels and those hotels will probably do well.”

But could Chinese interest be about to come to an end? Recent reports suggest that authorities want to stop the flow of money out of the country. A change that could put a dampener on further deals.

Mergers and acquisitions

With Chinese investors buying up stakes and sometimes whole companies there has been plenty of talk about possible consolidation in the market.

According to research from Morgan Stanley the top ten global hotel operators only make up around 37 percent of the market. Aside from the enlarged Marriott/Starwood grouping, there is also not much separating the rest of the major players.

Juillard certainly believes that the industry could soon be shaken-up.

“Consolidation should continue to go on, especially when the business models are becoming more and more asset light, with more focus on digital and driven by a higher level of segmentation. It’s interesting to see that Accor is going to sell its real estate, Hilton is doing a spin off and in the meantime all the big groups are moving on to a more asset light business model because they cannot support anymore the capex for real estate, which is lowering their development.

“So that’s why I think that we are just at the beginning of the consolidation, which could take place and Accor, NH and Rezidor – just to talk about Europe – are an illustration of this movement.”

Geerts agrees with this view.

“I think further consolidation definitely is likely and I think whether it is an American or a European player buying a Chinese player or the other way around I think consolidation is on the cards. I think it’s necessary anyway, with the threat of short-term rentals [like] Airbnb. I think that has woken up a lot of the hotel players as well and I think they realise that there is an opportunity now to invest and broaden their portfolio…”

Van Marken however, believes it might not be so simple.

“I’ve been in this industry over 30 years and for as long as I can recall everyone’s been scratching their heads as to why the hotel industry was fundamentally different to say soft drinks, or pharmaceuticals or banking where there was always a number one and number two and the rest were miles behind,” he said.

“In the hotel sector you had five or six players who were all quite similar who were all jockeying for power and all of them claimed to have something unique but none of them had an advantage in terms of scale that was double size of next guy.”

“How easy is it to envisage lots more consolidation? Not as easy as everyone might like to think.”

Even if the Chinese government makes it harder to invest in foreign assets, the fact that the likes of HNA and Jin Jiang already own plenty of hotel assets means that companies from the country will play a key role in 2017.

 

Tags: hotels, m&a

Destination Mexico: The Evolution of Luxury Travel

Luxury travelers are looking for more than just posh accommodations and generic pampering. Savvy suppliers and tourism organizations are capitalizing on the desire for authentic experiences, as the sharing economy continues to present new ways to connect travelers with local culture.

Read More

Next Story

Loading...

Loading...