“So, have you heard that Marriott might buy Accor?”

That’s what a trusted former colleague and hospitality industry expert told me last week, after hearing the same from multiple sources.

At first, it seemed highly improbable, perhaps even incredulous.

Like Bernstein Senior Analyst Richard Clarke, who covers European hotels and leisure, my initial reaction was: “I would genuinely eat my hat.”

But as we dug a bit deeper, reaching out to a number of different sources, as well as contacting both Marriott and Accor as well as another suggested possible suitor — InterContinental Hotels Group (IHG) — nothing was entirely clear or conclusive.

The majority of sources whom Skift spoke to had not yet heard any such reports, and those who had couldn’t be entirely sure if the murmurs were actually true.

Whether or not Accor is in play, however, it’s clear that the hotel industry as a whole is still very much in a consolidation phase.

Starting with IHG’s $430 million purchase of Kimpton in 2015, the hospitality industry has seen a wave of massive mergers and acquisitions, two of the largest being Marriott’s $13.3 billion merger with Starwood in 2016, and Accor’s $2.7 billion buy of Fairmont, Raffles, and Swissotel.

IHG CEO Keith Barr last week suggested to Skift it was highly unlikely that IHG was in pursuit of Accor.

However, Barr did say, “Every public company is in play to some degree,” for the right price, obviously.

With that, we decided to ask ourselves the following questions, and to use them to explore what might happen next in terms of hotel consolidation. What follows is our investigation into what the future of hotel consolidation could be.

Is Accor Actually in Play? Would It Make an Attractive Investment?

When Skift asked an Accor spokesperson if the company were in play or up for sale, she responded: “No idea; have not heard anything.”

Barr, however, told Skift that Accor’s multiple is trading at a discount to IHG and to Marriott, meaning its share price could potentially be attractive to someone looking to buy it.

Comparing Accor to Starwood Hotels & Resorts demonstrates that, to a degree. “There have been long-standing rumors about IHG getting ready for a merger, and Marriott has shown itself capable of pulling off a major merger with Starwood,” said Wouter Geerts, senior research analyst at Skift. “Starwood had an estimated $16.1 billion gross bookings at the end of 2015, and a total revenue of $5.7 billion. At the end of 2018, Accor’s gross bookings were slightly higher than Starwood’s at an estimated $18 billion, but Accor’s revenues are significantly lower at $4.1 billion (€3.6 billion).”

Geerts also noted that Accor is much larger than Starwood was, with “four times as many hotels and more than double the number of hotel rooms” with a total of 4,780 properties.

Accor has 38 hospitality brands, and for the past five years it has invested in a number of different businesses, from homesharing and concierge services to tech-fueled B2B vendors in what has been perceived as a bit of a shopping spree in comparison to its hotel peers. These numerous adjacent businesses and units may or may not be attractive to a potential buyer, however.

Geerts said, “Breaking off the asset side of the business, HotelInvest, has helped the company become leaner, but it seems too large to be acquired outright, and is instead more likely to merge with another player.”

Moreover, Accor, while pursuing an asset-light business model where it owns very little to no real estate, still has some owned properties within its portfolio. Most massive hotel companies today — Marriott, IHG, and Hilton included — have said they prefer to acquire brands that are more asset light than not.

Most recently, the company also announced a rebranding and the debut of a new loyalty program, ALL, short for “Accor Live Limitless” and Accor CEO Sebastien Bazin said the company was moving away from acquisitions and looking more internally to build up the company’s “teams, brands, loyalty.”

The company’s geographic distribution may also be attractive to potential suitors.

“Accor is the largest hotel operator in Europe, with over half of its 704,000 rooms in Europe, but the company is increasingly looking more outward and became a stronger player in North America with the acquisition of FRHI [Fairmont Raffles Hotels International,” Geerts noted. “Expansion in Asia Pacific is driven by a strategic alliance with Huazhu signed in 2014, which helps the group speed up its expansion in China, and gives access to key partners and investors in the region. Almost half of all hotels in the company’s pipeline are located in Asia Pacific.”

Clarke said that, if in fact Accor is in play, it might be “be looking to the Middle Kingdom for potential buyers” and at companies that include Huazhu and Jin Jiang.

Jin Jiang, already Accor’s largest single shareholder, in particular, sought to increase its stake in Accor in 2016 but the company managed to thwart its advances at the time.

As of December 31, 2018, Jin Jiang’s stake in Accor was 12 percent, making it the company’s largest single shareholder, followed by the Qatar Investment Authority (10 percent). Huazhu owns 4.63 percent of Accor’s shares. In November 2018, Jin Jiang acquired a majority stake in rival Radisson Hotel Group.

Would Marriott Want to Buy Accor?

A Marriott spokesperson would not comment whether Accor would be an attractive buy for the world’s largest hotel company, but most analysts believe Marriott, which just completed its integration of Starwood Hotels and Resorts, would likely not be ready for yet another massive deal so soon thereafter.

“I’d be a little surprised if Marriott got back on the M&A [mergers and acquisitions] horse that quickly, now that Starwood is finally absorbed,” said Bernstein vice president and senior equity analyst David Beckel. “I picture them being more interested in regional tuck-ins.”

Geerts, however, pointed out that Accor’s midscale and economy branded hotels might be more complementary to Marriott’s more upscale and luxury portfolio.

“Accor is particularly strong in the midscale (Novotel and Mercure) and economy (Ibis tri-brand) segments. For this reason, there would be less cannibalization with a Marriott-Accor merger than an IHG merger, with IHG relying heavily on its midscale brands Holiday Inn, Holiday Inn Express and upscale Crowne Plaza,” he said, adding, “It seems unlikely, however, that Marriott will buy another major competitor while it is still integrating Starwood.”

There’s also the question of how exactly Marriott intends to meet its goal of opening 1,700 hotels worldwide within three years. Would this growth primarily be fueled by organic developments, or is an acquisition or two included?

Recent comments from top Marriott executives don’t seem to suggest the company plans on doing yet another mega merger, but if the company wanted to buy another company like Accor, it likely has the money to do so.

“Marriott has a balance sheet to do it, and scale matters,” said Dan Wasiolek, a senior equity analyst for Morningstar who covers gaming and hospitality companies. “Marriott has shown that through the Starwood acquisition, especially in getting better terms with OTAs [online travel agencies] and better procurement.”

Wasiolek, however, does find a potential Marriott acquisition of Accor “kind of odd” because “the scale exposure that Accor gives Marriott is predominantly still economy and midscale” and he added, “I’d be surprised that’s where Marriott would want to put a decent amount of capital toward.”

Both Accor and Marriott, however, share similar aspirations for being the “world’s favorite travel company” as Marriott chief operating officer Stephanie Linnartz described, or as being the ultimate travel and hospitality company as Accor CEO Bazin has noted many times before.

Joining forces together would certainly help both Marriott and Accor get closer to obtaining that shared vision, but the integration of both companies into one would likely prove to have a number of challenges, including very different company cultures and business models.

Would IHG Want to Buy Accor?

Skift asked IHG CEO Barr directly if IHG was eyeing Accor, and his response was, “We are not targeting any material M&A” and he said that, “based on my past comments you will see Accor doesn’t fall into that bucket” of the types of hotel brands or companies IHG would want to buy.

Bernstein’s Clarke said that while he’s heard that Accor and IHG’s portfolios would be complementary to one another — IHG has strength in China and the U.S. while Accor has a strong presence in South America, Africa, and Europe — he added: “Accor would be dilutive to growth, margin, cash flow, brand mix, business model … and it would take a lifetime to integrate.”

He also said that while the world’s former largest hotel company pre-Starwood merger is a master of scale, “IHG have been pretty clear that they have no scale disadvantage that needs addressing, a common question after they failed to buy Starwood.”

Clarke continued, “It’s an argument that plays out in them seeing some rapid pipeline growth and they already have the world’s largest hotel brand, Holiday Inn, and the largest luxury brand, InterContinental. They have been doing M&A, but only to plug holes in the portfolio, like with Kimpton, Six Senses, etc. [Accor’s] Novotel, Mercure, etc., are not as strong as the brands they have.”

Wait, Is This Even Possible?

Would regulatory scrutiny allow such a mega hotel company to be formed among existing hotel giants? That’s still up for debate, but all together, the five biggest hotel companies by rooms — Accor, Hilton, IHG, Marriott, and Wyndham — only account for 25 percent of market share for the $525 billion hotel industry. So even if Accor merged with Marriott or IHG — or someone else — that one company wouldn’t have a majority share of the entire global hotel market.

That collective 25 percent market share, however, is a 6 percent increase from 2012, and more than half of all hotels in planning or under construction worldwide are represented by those five largest hotel companies.

Of the more than 18 million hotel rooms worldwide, 54 percent of them are affiliated with a global or regional brand or chain, while 46 percent are independent.

“Accor makes sense from an international and economy midscale presence for both {Marriott and IHG],” said Wasiolek. “Marriott has the balance sheet to do it. I’d have to look at IHG to see, but imagine they could also handle it.”

And although both could, theoretically, buy Accor, Wasiolek wondered if either Marriott or IHG might be better off turning their gaze to other competitors.

“I’d rather buy Wyndham Hotels for the better economy and midscale presence that also has La Quinta, and solid international exposure at a far better price than Accor at current multiples,” he said.

Who Makes the Best Hotel Consolidator and What Does the Future Hold?

If there’s one thing that does seem certain in the hotel industry, it’s that consolidation has become the norm — and more is likely on the way, whether it’s mega mergers between giants, or larger players looking to snatch up smaller, more regional specialists.

“It would not surprise me,” Ted Teng, CEO of Leading Hotels of World told Skift when asked if he’d heard anything about Accor being up for sale, or Marriott and IHG potentially looking to buy it. “Relatively speaking, it is a highly fragmented industry. Even with brand consolidation, ownership of hotels is even more fragmented. I think hotel brand companies are facing existential crisis [to] go big or go bust.”

By extension, what’s stopping companies not involved in hotel brands to buy up the hotel companies, he wondered.

“It is possible for companies outside of hotel brands to acquire hotel companies as well, if they can add more value without hurting their supply chain,” Teng noted.

As an example, he said, “What if Expedia acquires Marriott? [There would be be] very powerful upstream and downstream value creation. But then Hyatt may no longer provide inventory to Expedia.”

Whether or not such travel conglomerates are ultimately formed, Teng is convinced the industry “will see more Frankenstein companies but it will work for the most part.” And if it doesn’t? “If it doesn’t, they will cut off the not working part. The capital available is something operating companies have never seen or know how to deal with.”

Photo Credit: In recent weeks, rumors have swirled that French hotel giant Accor may be in play. Skift