When Aimbridge Hospitality closed in October on the acquisition of its main competitor, Interstate Hotels & Resorts, it was easy to compare that situation to Marriott International’s acquisition of Starwood: They were now both behemoths in their respective verticals. ?
The Aimbridge-Interstate deal, estimated to be worth US$1 billion, creates by far the biggest third-party hotel management firm with a portfolio of more than 1,400 hotels in 49 states and 20 countries. The questions that emerge are related to how other third-party managers respond, and how owners will react to Aimbridge and its very full plate.
Contributed by Alicia Hoisington
“There’s still a tremendous amount of opportunity in North America, as we still have less than 20% of the marketshare here,” said Mike Deitemeyer, former president and CEO of Interstate and now global president of Aimbridge Hospitality. The United Kingdom — which isn’t as hip to third-party management as the U.S. is — offers opportunities, as well, he said. And leadership has sights set on growing the full-service segment and lifestyle space.
Dave Johnson, CEO of Aimbridge, said there are no plans to scale back on scaling — and that the two companies together present a good foot forward to continue to gain share.
“We only had overlap of 10% of common owners between the two companies, so we can introduce (Aimbridge’s) owners to Interstate. Europe will grow at a faster pace than domestic,” he said, adding that resorts will also grow at a robust speed. For example, in August, Aimbridge announced that it had acquired six resorts to expand its Caribbean presence.
Ramping up
Plans to ramp up within Aimbridge’s other divisions are on the table, Johnson said. Those include the boutique division, Evolution Hospitality, that Aimbridge acquired in 2015, and lifestyle division Intrigue Hotels & Resorts, which Interstate brought to the portfolio.
Further, Johnson said Aimbridge’s Canadian pipeline is noteworthy. In October, the same month the Interstate deal closed, Aimbridge’s Canadian affiliate acquired Canadian condo-hotel management company Bellstar Hotels & Resorts. Founded in 2003, Bellstar’s portfolio comprised luxury destination resorts across western Canada. The transaction added seven independent properties with more than 600 rooms to Aimbridge’s well.
Does that mean more consolidation is on the horizon for Aimbridge? Johnson said he’s not looking at a potential deal right now as the leadership team integrates Interstate but is open to opportunities. One thing is certain, he said: Consolidation isn’t going anywhere.
“There are three different verticals: brands, owners and operators. I believe we will see consolidation in all three areas,” he said. “Scale matters when negotiating with OTAs, for procurement purposes and attracting talent.”
The broader picture
What does this quest mean for the broader third-party management landscape? Leaders of other substantial hotel management companies say that while the Aimbridge-Interstate deal made a perfect marriage, it didn’t cause much concern for them.
“The deal does not change anything from our standpoint, other than reducing two of our past potential competitors into one when competing for certain types of management opportunities. I do not think this will be the last example of consolidation among management companies,” said Nick Kellock, COO at Concord Hospitality, which manages 122 hotels with more than 18,000 rooms.
John Belden, chairman and CEO of Davidson Hotels & Resorts, said the deal doesn’t have a huge impact on the third-party management industry due to differentiation among companies. “There’s a benefit to scale, but our industry is a street-corner business,” he said. “I love the notion of scale, but what’s too big and not big enough will be the question of the day.” Davidson, along with its lifestyle and luxury operating division Pivot Hotels & Resorts, manages assets in the upper-upscale to near-luxury segments including 45 hotels with over 13,000 rooms.
Sage Hospitality, which operates 52 hotels with 11,580 rooms, isn’t likely to change course due to consolidation either, according to President and CEO Walter Isenberg. “Both companies were already so much larger than Sage pre-merger that we haven’t traditionally perceived them as our comp set, nor will we now that they are even larger,” he said. “We don’t anticipate that their merger or future mergers of large management companies would cause us to adjust any of our current business strategies or long-term plans.”
The managers with between 60 or 90 hotels under control are in a pretty good spot, according to Greg Champion, president and COO of Benchmark, which counts 60 hotels, mostly independent, in its operations portfolio and 20 hotels in asset management.
“The smaller guys with about 10 to 25 hotels will find themselves in a more awkward position because they don’t have buying power or the ability to change their span of control in terms of oversight and resources,” he said. “They will be in a pinch to compete.”
Champion speaks from experience: Mergers helped the company get to the size it is today. In 2016, Benchmark and Gemstone Hotels & Resorts joined forces and also created The Gemstone Collection.
“With all the activity in this business, you’d be foolish not to look at options,” he said. “For us, it was about looking at the deal. If one plus one equals two, in order for us to do a merger or acquisition, one plus one has to equal more than three. We want to grow and stay relevant, so we have to be open to it.”