HOTELS' 325

By Joan Marsan, Senior Editor -- HOTELS Magazine, 7/1/2001

For companies big and small, mergers and acquisitions drive much of the growth that the annual HOTELS’ Giants survey portrays. But for our biggest giants, even strong growth has caused little shifting of the rankings this year. Just one company, Prime Hospitality, is a new arrival to the top 25, whereas last year, four companies joined the top-25 ranks. In the 2000 edition, 28 of the corporate chains were new or returned to the survey newly reconfigured, while this year, just 13 companies enter the listings.

This lack of movement is by no means the result of a lack of activity. Even though the most-anticipated deal, the sale of the Le Méridien portfolio by the Compass Group, did not transpire in 2000, continental Europe served as a hotbed for merger and acquisition activity.

After expressing a keen interest in expanding outside of its Spanish stronghold into the wider European market, Sol Meliá, Palma de Mallorca, Spain, surprised some analysts by retrenching in Spain and Latin America with the acquisition of Tryp, growing in August 2000 to 97 hotels in Spain and 410 worldwide. Madrid-based NH Hoteles, however, entered new territory when it purchased Krasnapolsky Hotels, gaining 64 hotels and a strong presence in the Netherlands and Belgium.

Meanwhile, increasing Spain’s influence in the Americas, Occidental Hoteles, Madrid, supplemented its Mediterranean, North African and Central and South American portfolio when it bought Allegro Resort’s 24-property, Caribbean-based, all-inclusive chain. Barcelo Empresas, also based in Madrid, purchased 16 former Wyndham International hotels in North America, a 3,800-room portfolio.

Bass bought the 112-hotel Dallas-based Bristol Hotels & Resorts portfolio, many of which were Holiday Inns, strengthening its position in North America. And Scandic, Stockholm, bought the 16-hotel Swedish Provobis chain, reinforcing its presence in Sweden’s city centers.

Merger and acquisition activity resulted in several name changes. The Beck Summit and Janus American merger resulted in the creation of Janus Hotels. A new joint venture between RFS and MeriStar created Flagstone Hospitality. Northwest Lodging was swallowed up by AFM, propelling AFM’s move into the top 100. Also reporting name changes were: Devere Group Plc, listed last year as Greenall; Rosen Hotels & Resorts, listed last year as Tamar Inns; and Regal Hotels, now listed as Corus and Regal Hotels as the company moves to place more emphasis on its new Corus brand.

Corporate 300
Growth and consolidation continues as the giants extend their global reach.

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Despite an average 5% room supply growth rate in 2000 among the nine corporate hotel companies with a total of more than 100,000 rooms, not much changed in the way of top 10 rankings. And only one company, Prime Hospitality, made its debut in the top 25. But changes may be on the way. While Parsippany, New Jersey-based Cendant Corp. still tops HOTELS’ annual Giants list as the biggest hotel company in the world, second-ranked Bass has hopes of catching up. “Do we think we’ll be behind them next year?” says Tom Oliver, chairman and CEO, Bass Hotels & Resorts, London. “We have plenty of opportunities. We’re still looking for all the ways to grow in the United States.”

Indeed, Bass, with its 4% growth in room count in 2000, following a year of 2% gains, could be a fierce competitor. If rumors of potential targets, including Dallas-based Wyndham’s 62,262-room portfolio, were to come to fruition, Bass could supercede Cendant in the rankings. Bass’ objective is to put as much power as possible behind its stable of brands, Oliver says, and he cites the April Posthouse acquisition as a good example of how the company intends to grow its presence regionally and abroad. The May purchase of the Regent Hong Kong, already rebranded as an Inter-Continental, demonstrates Bass’ commitment to expanding its upscale portfolio base.

Meanwhile, Evry, France-based Accor, with just 1,032 rooms less than Marriott International, Washington, following a year of 9.8% growth, might be anticipating tipping that balance. A minority share acquisition in May of Hong Kong-based Century International Hotels brings 20 hotels (5,800 rooms), located in Malaysia, Indonesia, The Philippines, Hong Kong, China, Singapore and Vietnam, into the Accor fold, strengthening the company’s Asian presence.

New Territories

These top companies that have posted gains in room count have also seen vital increases in international representation. The London-based Compass Group (formerly listed as Forte) room count grew 2.2% in 2000, but Compass boasted an 8% increase in the number of countries in which it operates. Carlson Hospitality Worldwide, Minneapolis, Minnesota, posted a 13% overall growth rate in 2000, aided by a 10% increase in international representation. Choice Hotels International, Silver Spring, Maryland, saw a 4% rise in room count, while the company’s global reach expanded 14%. Cendant, while it increased the number of countries in which it operates by just one, opened 21 hotels outside of the United States, raising its total number of overseas properties by 27%.

Single-asset deals and development account for a fair portion of these global companies’ forays into new territory, but mergers and acquisitions increasingly enhance companies’ worldwide exposure. Consolidation has become an essential fact of life—even for the industry’s smaller regional players.

“Local competition in a time of reduced demand is pushing us to be much more exposed to the demand coming from the outside,” says Krzysztof Gerula, vice president, marketing and investor relations, Orbis Hotels, Warsaw. A regional recession has dampened the market in Poland, heightening hoteliers’ need for foreign business. Accor first purchased a share in Orbis in July 2000, a buy that was imperative to Orbis’ continued growth, Gerula says. “Without Accor’s brand we wouldn’t be able to compete for international clientele. But even domestically, it is essential.”

Gerula says such consolidation, the purchase of a regional company by a company with a strong global presence, works in both parties’ favor. The regional partner gains access to a wider customer base, while the broad, global company gets specialized distribution that would require regional expertise to develop. However, even more important than consolidation to growing business, and therefore companies, Gerula says, is the ubiquitous nature of the Internet, which has introduced consumers to leisure destinations and business partners with which previously they had no contact or knowledge. “Known brands make it easier for people to go to a destination,”

Gerula says. “But first people need to acquire a reason to go. The Internet offers exposure—not to this chain or that hotel, but to the culture and life of the place. It gives people the reason to go.”

Room For More

Neither Gerula nor his peers expect the pace of consolidation to abate. But continuing consolidation will not halt creativity and the birth of new companies and brands. “It’s nice to brag that we’re the biggest,” says Eric Pfeffer, hotel division chairman, Cendant. “But that is not important. It’s philosophy, principles.” And there is still room for innovators as small, successful companies such as the boutique-style UK-based Malmaison, recently acquired by London’s Marylebone Warwick Balfour Group and Brussels-based Radisson SAS, have demonstrated.

“You’re going to continue to see a growth of the bigger companies,” says Bass’ Oliver. “We’re continuing to see the acquisition of individual properties. But the smaller companies fill niches bigger companies can’t or are not interested in filling.”

Consortia 25
Technology and nich marketing strategies help consortia serve their members.

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The ability to provide technology relatively inexpensively, by and large, has been the arbiter of success for consortia. The Preferred Hotels & Resorts Worldwide shareholder-approved formation of the new IndeCorp Corp. holding company in September 2000 resulted in the company’s 275% growth and jump to the sixth-place ranking from 17 last year. IndeCorp, based in Chicago, is striving to demonstrate a multi-brand model that brings to independents the economies of scale achieved by brands such as Accor, Bass and Marriott. The marketing and reservations technology exists to allow independents to be just as competitive without becoming franchises, says Peter Cass, CEO of IndeCorp and Preferred. IndeCorp intends to prove it, hoping to raise its membership 90% again, to 800 hotels by the end of 2001. The company could well be within reach, having begun the year with the purchase in January of Summit Hotels & Resorts and Sterling Hotels & Resorts from Pegasus.

Unirez, which rocketed upward from its 10th-place ranking in our 2000 consortia listing to third place in 2001 following a year of 300% growth, attributes much of its success to its ability to provide a high-tech, application service provider (ASP) solution. ASP models, which allow hotels to access reservations and other types of systems through the Internet while the service provider houses and administers the technology, have become increasingly popular as hoteliers seek to outsource their technology and focus strictly on the business of getting heads to beds. The model has most recently attracted Rome, Italy-based Hotel Marketing Solutions, representatives of a nationwide Italian hotel network, while in January, 115 independent properties from within Sceptre Hospitality Resources signed on for technology service from Unirez.

“The reason we’re the largest is because we offer access to all channels on a global basis,” says Mark Wells, president and CEO, Utell, a division of Dallas-based Pegasus, emphasizing the importance of the role technology has played in growing consortia. Access around the globe and around the clock, not just to the GDSs, but also to the Internet and to voice reservations systems, is the mostimportant thing consortia can provide, Wells says.

Image-Conscious Consortia

But consortia can provide much more than technology. It might be better to look at them as information providers, says Peter Schweitzer, president and CEO, Design Hotels, a new arrival to this year’s list. Under the auspices of a single, solid brand- or image-based identity, they unite individual properties with similar characteristics that, independently, otherwise would be difficult for time-strapped but image-conscious consumers to find.

Design Hotels capitalizes on the consumer trend toward craving insider knowledge of their destination. Rather than feeling certain they’ll have the same experience everywhere they go—important to the clientele of brands promising consistency—these travelers want to feel like Parisians in Paris or like Romans in Rome. Design Hotels promises to connect consumers with a hotel renowned for the finest in contemporary design and boasting service staff that are knowledgeable about the local area’s scene.

“The modern traveler wonders, ‘Where should I stay in today’s environment?’” Schweitzer says. “It’s not exclusively about 4-star or 5-star level. It’s about whatever the place has going on, not from a historical perspective, but from today’s scene. We provide that information.” And Design Hotels provides more than information. Further reinforcing the image the consortia promotes, the company has produced and distributes through its Web site books and musical compilations for the hotels. This image-oriented, niche approach has enabled Design Hotels to grow from 12 hotels in 1995 to 170 hotelsin 2000.

The biggest consortia are also recognizing the value of niche marketing and reservations tactics. In July, Pegasus’s Utell launched Utell Selections. The program classifies properties in one of seven well-defined categories whose definitions are based largely upon those established by the Official Hotel Guide. The categories include luxury, superior, airport, resort and style hotels. “Up until this year Utell has been one large group—one of the largest—and it’s been homogenous,” Wells says of the 6,400-hotel group. “Utell Selections makes it much easier for the demand side to begin to understand the products we have.” And helping consumers understand the product is key to making the sale.

About The Rankings

Research data for the HOTELS’ 325 is secured through a standard questionnaire sent to hotel company executives. We survey companies primarily on the number of hotels and hotel rooms owned, managed, franchised or leased through the end of the calendar year. In addition, we ask participants to volunteer detail about the global distribution of their hotel portfolios.

In some cases rooms and hotels have been counted more than once, boosting the numbers of separate companies. This is because we choose to report hotel owners, managers and franchisors on the same list. For example, the hotels managed by Whitbread, which happens to be Marriott International’s largest franchisee, are counted under both Whitbread’s and Marriott’s headings.

We also call attention to the lag between the announcement of some major transactions and their reflection in the survey data. Most people are aware that Compass Group (formerly Forte) sold its Posthouse, Heritage and Le Méridien portfolios, but because the deals were not finalized by our data collection deadline, the Compass tally includes these properties. Expect to see the numbers rise for Bass Hotels & Resorts, Macdonald Hotels and Nomura in the 2002 edition of the Giants.

Late Closings

Because our counts tally the number of hotels and rooms a company could claim as of December 31, 2000, several high-profile acquisitions are not reflected in this survey. Among them are:

Hilton International’s purchase of Scandic Hotels. Hilton’s £612 million (US$846 million) acquisition of the 133-hotel Scandic chain significantly boosts Hilton’s presence in Northern Europe. The purchase lays down the gauntlet for competitor Bass, rumored to be looking hungrily at several brands, to heighten its presence in Northern Europe.

Raffles Holding’s acquisition of Swissôtel Hotels & Resorts. Ownership of the Swissôtel brand, with its 23 hotels, will more than double Raffles’ rooms inventory and will significantly increase the company’s global reach. Pre-acquisition, 85% of Raffles’ properties were located in Asia Pacific, whereas post-acquisition, 42% of the company’s properties will be located in the region.

The Compass Group divestiture of its Heritage, Signature, Posthouse and Le Méridien portfolios. Heritage will help Scottish-based Macdonald Hotels expand its reach into the Southern U.K., while Posthouse will increase Bass’ Holiday Inn brand’s presence throughout the U.K. Le Méridien’s 126 hotels spread over 55 countries goes to Nomura, for £3.21 billion (US$4.44 billion).

The MeriStar Hotels & Resorts and FelCor Lodging Trust merger. The proposed merger of MeriStar and Felcor would unite portfolios of 113 hotels and 186 hotels, respectively. “We are very similar companies and have had very similar strategies for value creation,” says Thomas Corcoran, president and CEO, Felcor. “I expect the combined company to enjoy better access to capital, cost savings, improved diversity and brand distribution.”