Shiji’s Hotel Tech Acquisition Spree: A Closer Look

Shiji has been on an acquisition tear. A look at its financial filings shines a light on how the Beijing-based hospitality technology company has been spending its money abroad. But the strategy remains convoluted to some observers. Shiji has collected and built a set services for hotels and restaurants with a sprawling and seemingly unfocused ambition.

Shiji has only a small foreign business. In 2018, it generated only $36 million in operating income outside of mainland China. That was merely 8 percent of its total operating income of $412.9 million (2.84 billion yuan).

But Shiji has been investing abroad. Since January 2016, it has spent at least $141 million on acquisitions and equity investments in travel tech companies outside of China, according to Skift’s review of its financial filings.

Shiji Group Investments Outside China

Source: Filings. *Estimated. **Phased investment since 2014.

More Acquisitions Likely

Shiji has dominance in China for hotel and restaurant enterprise software. Its domestic momentum is slowing. So it’s looking overseas to find long-term growth.

Kevin King, chief operating officer at Shiji Group, has led the overseas acquisition strategy.

“I think we have a good base of product and services in our portfolio,” King said. “We have enough that is creating noise in the market and gets us in the door to have a serious conversation with independents, regional groups, and globals.”

The company is doing something more sophisticated than merely rolling up some companies and putting them under one brand, King said.

“We do have the wherewithal to build our own technology,” King said. “We do build a lot of our technology — some that you see today in the market and some you don’t yet see in the market.”

The company’s StayNTouch property management system, acquired last year, maybe its best-known brand. But Shiji wants to connect the other touchpoints in a customer’s journey beyond the front desk.

King declined to revealer a bigger plan. But he gave one hint about what may drop.

“There are certain areas in travel technologies where we’re working with big partners to contribute back into the hospitality industry and wider afield into the distribution space,” King said.

A Series of Deals

Shiji’s largest Western deal in the past year came a year ago.

Last September, Shiji paid $33 million to buy out a remaining 77.4 percent stake in StayNTouch, a mobile-first, cloud-based property management system. The company had paid about $2 million for its earlier stake.

StayNTouch seems to have become one of its signature products from a marketing perspective outside of China. It has remained small, though. As of December, only 429 hotel companies were using the service.

In February 2019, Shiji paid $13.5 million to wholly acquire IcePortal, a tech firm. IcePortal helps hoteliers manage the digital imagery of their properties and display them correctly on distribution partners like online travel agencies.

Last September, Shiji wholly acquired Concept Software Systems, a retail tech provider for golf, spa, and other activities, for $5.8 million (€5.2 million).

Assembling a Broad Portfolio

A smaller target was Touchpeak, an Israeli company that enables enterprise software applications for payments systems to exchange messages more efficiently. Shiji had a 40 percent stake. In January, the group took full control of Touchpeak by paying $2.9 million for the remaining stake. Since then, it has since absorbed the company into its Shiji Payment Solutions unit.

Shiji’s latest deal came in May when it acquired MyCheck, a Tel Aviv-based startup. MyCheck’s mobile application lets users split and pay bills for goods and services.

The companies did not disclose terms of the deal. But a source estimated the value of the transaction at nearly $3 million.

MyCheck had raised more than $10 million since its founding, according to Crunchbase. But the startup foundered.

Shiji is offering MyCheck’s enterprise payment solutions for its hotel and restaurant customers.

Sometimes Shiji has taken minority stakes in companies. Exhibit A: Kalibri Labs, which helps hotels plan what rates and inventory they should distribute via third-parties like online travel agencies. In April 2017, Shiji Group bought a 12 percent stake in Kalibri Labs for $4 million.

ReviewPro, a reputation management firm, has been one of Shiji’s most successful acquisitions. In 2017, Shiji paid about $28 million (€26.3 million) to buy a majority stake in ReviewPro. Last year, ReviewPro grew its revenue 29 percent year-over-year to an undisclosed amount. It has about 60,000 hotels and restaurants as clients for its analytics tools.

Galasys, a tech service for destination management organizations and tourism boards, is another notable subsidiary. In 2017, Shiji significantly increased its holding in Galasys, taking a controlling share for about $13 million (£10.9 million). Today the 100 employee company helps theme parks and resorts run their operations.

A Few Stumbles

Shiji may have regained its composure after a couple of early wrong turns. In 2016, Shiji wholly acquired Hetras, a German-based hotel property management system, for $5.2 million (€4.6 million). Hetras had about 100 hotel company clients at the time. The project stumbled, though. Shiji shelved it. It bought StayNTouch and made that its signature property management system instead.

Between 2014 and 2018, Shiji invested in and eventually wholly took over Snapshot, an analytics dashboard for hotels, for a total investment of $35 million (€32 million). In 2018, Shiji injected about $1.5 million of capital into the unit.

The dashboard has been slower to appeal to hotel executives than Shiji may have hoped, experts said. Today about 5,000 hotels in Europe and Asia use the service. The company recently began marketing the Snapshot and Kalibri products as part of its overall data management services for hotel customers.

Shiji made another deal of note. It acquired Baoku, a corporate travel startup that had been one of Skift’s top startups to watch in 2017.

Baoku had focused on travel management services for China’s domestic market. But non-Chinese companies can use its services, too. Increasingly it may become a competitor among travel management services outside of China, such as Singapore-based Travelstop.

Shiji also continues to do what amounts to consulting work. For example, last year, Marriott International debuted its 6,000 hotels on Alibaba’s online travel agency Fliggy. Fliggy customers can use its credit-based hotel payment service, which lets qualified travelers reserve hotels without paying a deposit and have an express check-out, at more than 1,000 of the properties — thanks to Shiji’s underlying tech.

strategy gaps?

Overall, Shiji’s game plan can seem mysterious to some outside observers.

Business school professors often say that companies that try to establish market leadership in a critical product offering among specific types of clients tend to thrive the most. In China, Shiji has succeeded by becoming the most common hotel and restaurant software and hardware provider. But overseas, it faces a fractured market with established players.

Some of Shiji’s products could suit global chains. Other products might better suit regional players. Still others might appeal to independent operators. For each type of client, Shiji may need different marketing messages and pricing. On these points, the company still seems to be experimenting. Perhaps it’s waiting to see which services become popular first.

Connectivity and distribution remain missing pieces of its offering, to an extent. Hundreds of thousands of hotels still don’t use tools, such as channel managers, to streamline and maximize their distribution to online and offline.

More subtly, many of the available channel managers and related distribution tools focus on just a few opportunities, such as distributing hotel rates and inventory on Google. There’s a market gap for channel managers that give full control to hotels in pushing the rates and inventory they want.

Hundreds of thousands of hotels also have poor tools for collecting direct bookings via their websites. The tools don’t let them compete effectively on price and mobile speed with online travel agencies.

Many of the third-party internet booking engines sold to hotels have technical flaws, limited usefulness, or unattractive pricing.

Many hotels also struggle to figure out how to set their rates to make the most money and how to offer upgrades to customers who might be willing to splurge.

In brief, Shiji’s acquisition spree may not have been enough. It may still need to build or buy more offerings to appeal to the market where hoteliers are hurting the most and most willing to pay for solutions.

Investments in channel managers, booking engines, and revenue management systems might be possible targets. Loyalty program management, upgrade and ancillary management technology, and customer data platforms might also make compelling possible additions to Shiji’s suite.

Looking Ahead

King said the company doesn’t intend to have a single sign-on across its array of services. But it will support its brands, whether built or bought, with a global client service infrastructure, “with offices around the world, and 24/7 regional and local support.”

Part of Shiji’s assessment of a potential acquisition, King said, “is dissecting the viability of the products and services each company offers, the potential for growth within each technology, a complete understanding of where they bring value to the Shiji ecosystem and international market needs, and more importantly, where each acquisition fits into, what will be, Shiji’s single most ambitious contribution back into the market.”

The analyst consensus is that Shiji will grow its revenue 9.9 percent to $548 million (3.781 billion yuan) in calendar year 2019, according to research firm S&P Global. CEO Li Zhongchu, who founded the company in 1998, owns a controlling majority of shares, while Alibaba Group, the e-commerce giant, holds a 13 percent stake.