Marriott's decision to buy Starwood does seem to make consolidation among the rest of the chasing pack seem very likely. The problem is nobody wants to get burned by doing a deal at the very top of the market.
Marriott International CEO Arne Sorenson concedes the company’s “hands are full” integrating Starwood, but he doesn’t believe the hotel chain is “done forever” in terms of mergers and acquisitions.
“We’re not going to go out and try to create the opportunities at the moment,” Sorenson said. “If opportunities pop up, we’ll have to assess them.”
In an interview with Skift at the International Hotel Investment Forum in Berlin last week, Sorenson said he also thinks rivals see the merit of further dealmaking within the sector.
“Since we announced the deal in November of ’15, there’s been a lot of industry chatter about, ‘OK, this is the first big consolidation of this era. Other companies are going to have to follow.’ And I think that is because … people understand the logic of it and think the logic makes sense. I think that’s one reason people say, ‘Alright other companies should follow,'” Sorenson said.
For years there’s been some expectation that there would be consolidation at the top of the global hotel industry although at times some top officials said chains were too big to merge and such marriages would be too complex.
But with Marriott’s acquisition of Starwood and other moves, the pace could be picking up.
InterContinental Hotels Group (IHG) was reportedly the subject of a bid from Chinese insurer Anbang last year (although this was denied), and AccorHotels has been on a dealmaking spree of its own, albeit at a lower level.
There are problems with any merger-frenzy scenario, at least according to Sorenson, which make it “a little less predictable,”
“One is, not every company is for sale,” Sorenson said. “Starwood was for sale. And so if you think about any other company in the space, you’ve got to say, ‘OK, how does that deal come together? And are they willing to get it done?”
“And I think the second is, does our [Marriott-Starwood] deal prove to be successful? We think it will be. But the fact that we closed it, is not by itself proof of that.
“Now, if you’re one of our competitors, you’ve got to think about, ‘OK, well if it actually is successful and we wait too long and the signs of success are showing, how much have we given up?’ So that’s got to be the kind of conversation that’s happening with other companies, I would think.”
The chasing pack
Having added Starwood’s portfolio of brands to its own stable, Marriott is clearly the largest player number and things get a lot more congested behind it, as the following table shows.
Hotel Chains by the Numbers
|Parent Company||Existing Properties||Existing Rooms||Rooms Market Share Percentage|
|Intercontinental Hotels Group||5,025||728,242||4.5|
|Choice Hotels International||6,449||512,045||3.2|
One player that might be worth watching is HNA Group, which signed a deal to purchase 25 percent of Hilton. HNA owns all of Carlson Hotels, which includes a 51.3 percent stake in Rezidor Hotel Group. It also owns just under 30 percent of NH Hotel Group.
AccorHotels, is also worth keeping an eye on. Its chairman and CEO Sebastien Bazin was asked at a recent media dinner about the prospects of buying IHG. Rather than giving a flat-out denial, he pointed to the rise in IHG’s share price over the last year, something that makes it less enticing as a takeover target.
When rumors began to swirl last year of a takeover approach for IHG from Anbang, analysts at Morgan Stanley said that further consolidation in the market “looks likely” and that trade buyers had the “advantage of synergies.”
The basics haven’t changed since then.
“The good and bad thing about M&A is usually you end up doing M&A at the top of cycles because this is when you can get the money. And usually 50 percent of the M&A done at the top of the cycle ends up being disastrous. So if you want to have successful M&A timing is key,” Bazin said.
It’s been nine years since the last global financial crisis. The question is: Have we reached the top of the market yet, or is there more room to grow?
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Photo Credit: The Marriott leadership team celebrates the acquisition of Starwood in New York. Are we likely to see similar deals in the future? Charles Sykes / Associated Press for Marriott International