The outlook for mergers and acquisitions changes dramatically with the investor’s focus. For Josh Wyatt, Patron Capital’s investment director, economy and hostels are where it’s at, as his firm’s portfolio includes one of the hottest hostel concepts around: Generator. But, for Sarmad Zok, chairman and CEO, Kingdom Hotels Investments, Riyadh, the mid-tier is where the action will be. Discipline may just be the buzzword for 2015.
Here is what some of the industry leaders had to say about merger and acquisition activity for 2015.
HOTELS’ Investment Outlook: What are the key locations and sectors to watch globally?
Ivar Yuste, partner, PHG Hotels & Resorts, Madrid: Much of the activity will be in the upper-upscale and luxury segments. Selected hotel chains in Southern Europe will continue to grow through M&A in other markets. The Greek market is heating up as demonstrated in deals like Valentin Hotels’ four properties in Volos and Oaktree Capital’s investments with Sani Group. Spanish brands are also expanding outside Europe. Melia Hotels and Riu Hotels have been active in the Bahamas, Roc Hotel is growing in Cuba and Iberostar is expanding in Mexico. NH Hoteles is also extending its presence in Cuba, but it has a local investment partner to facilitate growth in Colombia and Brazil. NH has done the same recently in China by signing a JV with Chinese travel conglomerate HNA.
HIO: Will there be a significant trend toward large-scale consolidation?
Yuste: In Europe, not really, simply due to language barriers and legal/tax and cultural differences. There may be a few exceptions — deals by large pan-European hotel groups or investment vehicles, like the recent 35% stake by Accor in Mama Shelter, will still happen. For the most part, consolidation in Europe and the Mediterranean will materialize on a property-by-property basis or with smaller portfolios.
Wyatt: Hotel companies searching for their next generation of customers will naturally start to look at the hip concepts and new concepts that combine an active lobby with smaller room sizes or higher density. It would not surprise us to see a big headline with a global hotel firm buying one of these emerging brands and platforms.
Trevor Ward, managing director, W Hospitality Group, Lagos: It’s not on a large scale, but deals like the Marriott takeover of Protea — and on a smaller scale the Thailand-based Minor deal with Sun International and Mantis with Australia’s Staywell — could point to a trend. Watch what Tsogo Sun will do in the New Year.
Patrick Scholes, managing director, lodging and leisure equity research, SunTrust Robinson Humphrey, New York City: The real question as it pertains to the public companies is when we will start to see private equity taking out one or more of the smaller hotel REITs. This is becoming more relevant as the public REITs are starting to get priced out of acquisitions by private equity. I suspect we won’t see it happen in 2015, but would not be surprised come 2016.
HIO: How do you see the role of management companies evolving?
Leslie Ng, CIO, Interstate Hotels & Resorts, Arlington, Virginia: We expect independent management companies will continue to be in play, either through industry consolidation or via private equity platform investments. Large management companies will likely get bigger by acquiring smaller companies.
HIO: Who are the hot buyers for larger deals?
Ng: The major private-equity shops active in the space. These buyers include Blackstone, Lonestar and Northstar. Other newer players, such as ARC, will also be active in this space.
HIO: What’s the sweet spot for single-asset plays?
James Kaplan, senior vice president of development, Minor Hotel Group, Bangkok: Somewhere in the US$100-150 million range.