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Mergers and acquisitions are common in a crisis and its aftermath, but this time may be different.
The CEO of one of the world’s biggest hotel groups has praised the way governments worldwide have buoyed the hospitality sector — as a result, it’s going to be some time before brands start changing hands.
“You may potentially see some mergers and acquisitions take place, as we’ve seen after the financial crisis. But I don’t think it’s immediate though, as there’s a lot of government support around the world,” IHG CEO Keith Barr said on Tuesday during Skift Global Forum.
“You’ve got mortgage forbearances, rent forbearances, government stimulus, PPE.
All that is helping to keep all boats afloat right now.”
However, Barr said that once that support wanes, the strongest companies, with the big balances, have the opportunity to accelerate their growth. “But you have to do it intelligently, get the right valuation — don’t chase growth that’s value destructive,” he added.
And what of the recent rumor that Accor and IHG will combine forces, asked Cameron Sperance, Skift’s hospitality reporter. “Well, the only thing that comes up more is: are Jen and Brad getting back together?” Barr quipped. He declined to offer any more information.
So what is happening in the sector right now? For Barr, the signals from Greater China were encouraging.
“It’s significantly ahead of the rest of the world, because the virus was contained aggressively. It’s probably a year ahead. Our hotels there are having a record year… you sense they’re on the path of normalcy, it gives me hope.”
Closer to home, despite a Labor Day bounce, bigger convention hotels in the U.S. may face a slow recovery. Even with a low-cost Covid test that could return a result almost immediately — something that would be transformational for the industry — these hotels will take longer to rebound, Barr said.
He also called for a “common framework” of testing to be set up between countries. “It’s a key component, but not moving fast enough,” he warned.
No Financial Impact
Larger brands may also be well placed to snap up independent properties, who will be seeking refuge after months of low revenue. But what about IHG’s own default on guaranteed property returns with SVC? Some 100 IHG properties are about to move over to Boston’s Sonesta brand.
Doesn’t this mean there’s a hole in the theory that bigger brands will be the most successful coming out of the crisis, asked Sperance.
Barr dismissed the end of what was mostly a “financial relationship.”
“We had a long term relationship with SVC, it’s been a great partnership of 16 or 18 years. It was a complex, financial one. We have to do right by our shareholders, they do need to right by their shareholders. We were entitled to not fund aspects of the deal, they’ve chosen to terminate the deal. It’s not a big financial impact, there’s a small amount of fees … we have more interest coming in, than going out.
The power of scale is going to important.”