Michelin, the France-based tire company that publishes Michelin guides for restaurants and tours, quietly acquired the booking site Tablet Hotels in October.

The goal of the deal, which was announced Monday, is to have the Tablet Hotels team lead the digital transformation of the print-oriented Michelin Red Guides for restaurants and Green Guides for tourism, and to build a larger travel vertical, Tablet Hotels co-founder and CEO Laurent Vernhes told Skift.

“Revenue from the Michelin Guides is a rounding error,” Vernhes said. “They believe it could be more than that.”

In fact, in 2017 Michelin, which has a market cap of $18.8 billion, created a Michelin Experiences unit to combine and grow its various travel-related assets, and has tested things such as offering Chinese travelers kitchen tours with chefs at Michelin-starred restaurants. The company also has ambitions to create a Michelin club, which would build on the learnings of the Tablet Plus membership club, Vernhes said.

“Travelers and foodies are now looking for experiences which tell a story, and which help them discover a universe where they can show their appreciation of the local cultures, said Pascal Couasnon, director of Michelin Group’s gastronomic and tourist activities, in a statement. “Tablet is part of this new lifestyle that fully corresponds to the ethos of the Michelin guides. We want to offer our readers the best, by revealing places that offer this extra soul and express the fruit of the work of hoteliers and passionate chefs alike.”

In a presentation at a Goldman Sachs conference in London a few days ago, Michelin stated that it considers Experiences, including travel and fine dining, as one of four key growth areas for the company. Its strategy includes investments and acquisitions to propel value creation for this restaurants and travel division, which has seen net sales triple in 2018.

The Deal for Tablet Hotels

Under the deal, Vernhes, who co-founded Tablet Hotels with chief creative officer Michael Davis, will remain CEO of Tablet Hotels, reporting to Couasnon. Michelin will keep the Tablet Hotels brand, Vernhes said, and its team will remain in New York City.

Tablet Hotels co-founder and CEO Laurent Vernhes.

Founded in 2000, Tablet Hotels is a hotel booking site that specializes in curating luxury and boutique hotels, and currently lists some 3,500 properties. Vernhes said that in the early days of Tablet Hotels’ existence, after navigating the dot-com bubble and the September 11 terrorist attacks, he often described the startup as the Michelin of hotels.

In fact, he characterized the Tablet Hotels mantra as “Michelin in, Zagat out.” What he meant is that hotels had to pass anonymous inspections, similar to how Michelin Guide reviewers vetted restaurants, and meet certain quality standards to get listed on the site, and then verified guests could vote hotels off the site Zagat-style the if the property didn’t pass muster.

Vernhes said Tablet Hotels has kicked off hundreds of hotels from its site over the years. Ownership changes at hotel properties can often lead to their demise from a quality perspective, he said, and “some hotels are not built to last from a maintenance perspective.”

Because of that curation perspective — Tablet Hotels currently lists 17 hotels in Boston for a December 10 stay compared with 202 on Booking.com, for example — Vernhes said he already felt a “kinship” with Michelin when the Experiences unit’s then-leader, who is no longer with the company, approached Tablet Hotels about doing the deal a year ago.

Michelin and Vernhes aren’t sharing details about the purchase price. Vernhes said Tablet Hotels was expected to notch $100 million in gross bookings, meaning the full value for hotel bookings and not the revenue that goes to Tablet Hotels, in 2018. He said revenue grew 20 percent this year, and the booking site has long been profitable. The company’s Tablet Plus membership club has 12,000 members who pay annual fees of around $100 to get perks such as room upgrades or free parking at participating hotels.

Informed of the deal and without knowing any profit numbers, several travel industry dealmakers and analysts speculated that Michelin may have bought Tablet Hotels for $20 million to $50 million. Given that Michelin is a strategic buyer, it isn’t out of the question that the price tag would even be a bit higher.

Bootstrapping All the Way

An important part of that calculation is that Tablet Hotels had some angel investors, but never took any venture capital money, according to Vernhes.

“It’s really impressive what Laurent created without taking outside capital,” said HotelTonight co-founder and CEO Sam Shank when informed of the deal. “He and I see the world in much the same way — sharing a passion for inspiring people to travel through great design and a focus on the customer. It makes sense for him to align with a partner who can consistently provide traffic to him.”

Vernhes said the co-founders bootstrapped the site, growing from cash flow and profits in its 18-year history. Acknowledging that perhaps management could have been more ambitious over the years if the company had accepted venture capital funding, he said he has long been frustrated that the company’s marketing efforts never exceeded 20 percent of revenue.

Tablet Hotels plans to devote $10 million to marketing next year, much of it in brand marketing, a first for Tablet Hotels, he said. Vernhes characterized that amount “as a big jump for us” as the company traditionally emphasized product and content over marketing.

“I feel great that the narrative is changing and that we are going to have the means to do the things that we haven’t been able to do yet,” Vernhes said.

In the acquisition announcement, Michelin noted that 52 percent of Tablet Hotels’ customers are in North America. “The ambition of this alliance with Michelin is to conquer wider and more diverse audiences geographically, by extending existing offers and building new ones,” Michelin stated.

While Tablet Hotels may be able to build scale in places such as Europe and Asia, including China, where Michelin is strong, Michelin will be able to add hotel bookings to its dining, tourism and maps portfolio.

Michelin and Tablet Hotels will have to compete against the marketing clout of Booking Holdings, Expedia Group and Ctrip, for example. On the other hand, the Michelin tire business is globally recognized, and the strategy will be much more targeted than that of larger players, geared toward travelers who are willing to pay for quality and aren’t just chasing price.

Photo Credit: Pictured is a standard harbor view room at Hotel Icon in Hong Kong. Tablet Hotels, a booking site that curates luxury and boutique hotels, was acquired by Michelin. Hotel Icon/MCT