Marriott’s USD 12.2 billion bid to buy Starwood Hotels on Monday is poised to create the world’s largest hotel chain with 30 brands across 5,500 properties and a whopping 1.1 million rooms.
Marriott’s USD 12.2 billion bid to buy Starwood Hotels on Monday is poised to create the world’s largest hotel chain with 30 brands across 5,500 properties and a whopping 1.1 million rooms. To get an idea of the giant the deal will create, the current largest hotel chain, Hyatt Hotels, boasts of close to 700,000 rooms. Starwood, which owns hotel brands St. Regis and Aloft, announced its plans for sale earlier this year and while Hyatt Hotels Corporation, InterContinental and three Chinese companies expressed interest, Marriott emerged as the winner.
The media has covered various aspects of the deal in depth including premium to shareholders and whether its justified or not, concerns about points held by the Starwood loyalty program members as well as the reaction of the stocks of the two companies on the day of the announcement and how the pattern differs from most other M&A deals. However, an equally important topic of discussion is the need for such consolidation in the industry.
Consolidation in the hospitality industry is not a new phenomenon. In fact, the trend has been quite obvious over the last few years with several small acquisitions by hospitality majors such as the acquisition of Kimpton Hotels & Restaurants by IHG in December last year and the purchase of Strategic Hotels and Resorts by Blackstone for about USD 3.9 billion earlier this year. But a deal of this size and scale has not been witnessed by the industry since Blackstone’s acquisition of Hilton in a USD 26 billion LBO at the height of the real estate bubble.
While analysts can continue to debate the value to shareholders, I see this as a much required move for the industry majors to stay competitive. There is a shaking up of the industry’s model with companies being pushed to consolidate in order to cut costs and attract customers. The threat emanates from both within the industry, due to increased competition, and from outsiders or new players that are transforming the functioning of the industry.
The hospitality industry is extremely competitive with hotel companies continuously adding to their portfolio of brands in order to target new customers. This has compelled companies to endlessly target new markets and stay efficient in order to stay competitive. Moreover, outsiders such as online travel agents are eating into margins and the emergence of new competitors such as Airbnb and Homeaway are eating into their market share. Traditional players are being forced to consolidate and get bigger in order to improve efficiencies in this highly competitive landscape.
As Barry Sternlicht, founder of Starwood Hotels, said post the announcement of the Starwood-Marriott deal, “We’re going to see global consolidation. This probably won’t be the last deal.”
Data collected by Bloomberg shows that acquisitions of hotels, travel-services companies and tour operators announced in 2014 aggregated USD 64.4 billion—more than double the value in any of the previous six year. With the Marriott-Starwood deal, 2015 could be another big year for the industry. With Aurigin (formerly BankerBay) rolling out its real estate platform earlier this year, we are witnessing this trend first hand – evident in an acceleration of hospitality deals being added to our existing deal flow.