The short-term goal of the deals is to win more work from hotel management companies. The long-term goal is to sell the combined portfolio. We look at the merits of Accel-KKR-owned Cendyn's acquisition of Rainmaker. We also look at potential acquisition targets.
Buyout firm Accel-KKR is rolling up hotel technology vendors. It needs to find bargains, given the high valuations for the bigger businesses it more typically buys. So it’s looking to build scale with mid-market companies showing revenues of between $5 million and $200 million. Mid-market firms often sell for lower prices relative to their earnings.
Like with any private equity firm, the goal is an eventual exit with a big profit. Accel-KKR’s trajectory so far offers interesting insights into an increasingly important segment of the hospitality sector.
Here’s a timeline of Accel-KKR’s hotel tech deals. We follow that with our best guesses on who the equity firm might invest in next while analyzing the firm’s latest deal, too.
In June, Accel-KKR became a majority owner of Cendyn Group, a hotel marketer based in Boca Raton, Florida. This month it supported Cendyn’s acquisition of Rainmaker, a hotel revenue management service, for an undisclosed price.
Meanwhile, in February, Accel-KKR underwrote the merger of Travel Tripper and Pegasus. The companies help hotels take bookings on their websites and do related marketing work.
Accel-KKR began this phase of hotel tech investment in 2016, when it took a minority stake in Cendyn. It also helped the company acquire GuestFolio, a Canadian rival.
Seeking Mid-Market Magic
Consolidation of sectors with small players is part of Accel-KKR’s playbook, with more acquisitions coming, said executives at the firm’s recently acquired hotel tech vendors.
In hotel tech, heft brings a perk, the attention of hotel management companies. Each of these hotel management companies runs many properties, sometimes as franchisees.
Hotel companies once saw sales, marketing, and revenue management as siloed efforts. The teams bought software for each need. But now those silos are breaking down.
“When we go in for meetings to sell CRM [customer relationship management], we increasingly see sales and marketing managers along with the revenue managers at the table evaluating the decision,” said Tim Sullivan, president at Cendyn.
Hotel owners and managers prefer simplicity, Sullivan said. Dealing with fewer vendors can give them a better handle on which partners are best. Owners want tools that help them keep travelers who book directly and repeatedly.
“We’re big believers marketer and revenue management teams need to be very close partners,” said Josh Herman, vice president of marketing and public relations for Fontainebleau Miami Beach, a property that uses some services from both Cendyn and Rainmaker. ”
Combining many services might lead to significant profits years from now when Accel-KKR cashes out, others speculated. It may want to sell a rollup to a platform giant like Amadeus, Oracle, and Sabre.
These publicly-held companies are investing in the sector, too. They often pay premiums for businesses that can plug holes in their portfolios.
A case in point: Last year, Amadeus bought TravelClick, a set of hotel business intelligence and operational services, for $1.52 billion. TravelClick had been a rollup of companies done by private equity firms like Thomas Bravo and Genstar Capital.
David Cusimano, a principal at Accel-KKR, has been the point person on the hotel tech deals. Managing director Rob Palumbo led the firm’s first minority stake in Cendyn in 2016. Managing partners Dean Jacobson and Greg Williams take a keen interest, too.
Accel-KKR often buys companies using a mix of investor money and debt.
They appear to favor vendors that are bargains and that have cash flow from subscriptions paid by many loyal customers. They also seem to like services potential buyers like Amadeus, Sabre, and Oracle lack.
Industry observers suggested a few possible targets.
Avvio, a hotel marketer, caught notice. Its customer list includes many British and Irish hotels, a geographic market that Accel-KKR’s U.S.-based brands need to expand. Avvio, founded in 2003, appears to have taken minimum outside investment. It took about $5.5 million (£3.5 million) injection from private equity firm Calculus in 2014.
Avvio’s booking engine for hotel websites offers distinctive and arguably more ambitious tools to what Travel Tripper and Pegasus’s systems have.
Avvio is growing. It has just moved into a bigger London headquarters, having hired 30 additional workers in the past year-and-a-half.
Analysts also name-checked Koddi, a hotel metasearch marketer. Accel-KKR’s portfolio is weak on metasearch advertising capabilities, something that Koddi is the U.S. leader in for hotels.
Koddi generated $27.3 million in revenue in 2018. It has said it hasn’t taken outside funding since its founding in 2013 in Fort Worth, Texas.
OTA Insight would make a costlier acquisition. The London-based hotel rate-benchmarking startup, founded in 2012, serves more than 40,000 properties. It has disclosed raising $20 million in venture equity funding.
Hotel rate-benchmarking is a service that would dovetail with Cendyn and Travel Tripper’s.
Some history offers context: In 2015, Rainmaker acquired Revcaster, a rate shopping tool. The tool was first built for Best Western. But Rainmaker couldn’t scale it. It recently discontinued the product to use OTA Insight as a partner instead.
HotelPlanner, an online agency for group sales, has a U.S. market-leading client list of associations and medium-sized companies. The Florida company, founded in 2002, has said it hasn’t taken outside funding. Its data on group-buying and sales patterns might help Accel-KKR’s portfolio companies.
Cendyn’s Plans for Rainmaker
The low-hanging fruit for Cendyn is to boost cross-selling with Rainmaker. The companies have somewhat overlapping client lists. Rainmaker is much stronger than Cendyn with casino hotels, for instance.
Last week at the Hotel Data Conference, Cendyn and Rainmaker compared customer and propsect lists.
“Just at that event, about 20 or 30 companies were either customers or prospects of our brands,” Sullivan said. “That’s a taste of the potential synergies.”
On the product front, Cendyn is keen about Rainmaker’s Grouprev. The tool gives a hotel’s group sales team recommendations for the rates to charge.
“Oftentimes a problem hotels have is their group sales team sells a week and then the revenue management team comes by to say the hotel could have sold the block for more to transient customers,” Sullivan said.
Guestrev aims to measure supply and demand for the whole hotel. In a plus, it claims to intuit the total spending on services beyond rooms that a group might make.
By early next year, Cendyn plans to add Guestrev to all users of its sales proposal software tool, eProposal. Hoteliers would then have more information on what price to offer when using Cendyn’s software to respond to a group request.
A Critique of Rainmaker
Cendyn, with Accel-KKR’s help, probably picked up Rainmaker at scrap value. More politely, it nabbed a relative bargain.
Rainmaker Group before had two parts. It drove roughly 80 percent of revenue from its sale of software outside of hotels. It’s main business helped owners of multi-family properties lease or rent their units at optimal prices.
In 2017, it sold that business to RealPage for $300 million in cash. That was about nine times the unit’s annual revenue, a source said. The deal didn’t close until the end of the year because of a protracted Department of Justice review on antitrust concerns.
Rainmaker’s remaining hotel revenue management business was less successful. In 2018, Duetto, which recently received a minority investment from private equity firm Warburg Pincus, offered to buy Rainmaker, sources said.* But the deal fell through.
The distraction of the delayed RealPage sale and the failed transaction with Duetto led to problems. Execution stuttered and some employees left, sources said.
The company hemorrhaged big clients while winning small accounts. Since 2018, Omni, a hotels group, left to rival company IDeaS, owned by SAS. Mohegan Sun, a major casino resort, and Hard Rock Hotel & Casino Las Vegas defected to Duetto. Another rival, Infor, took some clients, too.
Meanwhile, Rainmaker’s revenues grew thanks to the rise of sales to smaller companies, such as SLS Las Vegas Casino and Resort.
In the first quarter of this year, Rainmaker boosted its sales by 20 percent, year-over-year. But the company didn’t reveal the revenue number, which some estimated at about $6 million, or its profit, which some speculated was zero.
At best, it might be break-even on earnings before interest, tax, depreciation, and amortization (a measure of a company’s operating performance), sources said.
In short, Rainmaker is not throwing off the margins a private equity firm would want. Accel-KKR typically seeks a multi-year return on investments of about 30 percent. Profitability of underlying business units is a component determining a successful exit.
It’s unclear if Rainmaker knows how to boost profit margins while growing revenue. It doesn’t lead in any segment, though it is strong in gaming.
The company’s hotel revenue management product GuestRev hasn’t had the same level of research and development as IDeaS’s and Infor’s products have recently, industry analysts claimed. Cendyn may need to hire veteran managers to streamline operations.
For context on the broader market, subscribers to Skift Researchers can read The Hotel Revenue Management Landscape 2019 report.
Cendyn, for its part, may have the momentum to boost Rainmaker. It has more than 30,000 properties using its tools for customer relationship management, group sales, and other efforts.
Hoteliers have other options. Cendyn’s rivals include NextGuest CRM (formerly Serenata) and TravelClick Guest Management, acquired by Amadeus last year.
“We’re hoping the merger will let us make smarter decisions about how to give preferred pricing and personalized attention to our best customers,” said Herman of Fontainebleau Miami Beach.
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Photo credit: SLS Las Vegas Casino & Hotel is a customer of Rainmaker's revenue management services. This month Accel-KKR-backed Cendyn Group acquired Rainmaker for an undisclosed sum. SLS