CEOs differ on M&A pace, agree on value of connection
 
CEOs differ on M&A pace, agree on value of connection
16 AUGUST 2017 9:01 AM

Hotel industry leaders speaking in Australia have differing views about whether more hotel companies will merge, but agree that whatever activity there is will be the result of an increase in experiential travel and the need for connectivity. 

SYDNEY—Three company leaders gave three different takes on how hotel industry consolidation will unfold during the next year.

Speaking on a panel called “The Urge to Merge” during the recent Hotels World conference at the Sofitel Sydney Wentworth Hotel, the speakers were clear about how they view the consolidation that has permeated the global hotel industry during recent years.

Rachel Argaman, CEO, TFE Hotels: “Given the trend towards consolidation and in a time that there would be a limited amount of opportunities, I think it would probably be about the same.”

Choe Peng Sum, CEO, Frasers Hospitality Group: “I think it’s going to be feverish. It’s going to go quite a lot faster in this model; we’ve already seen a lot of businesses that have grown. I think that the size of a typical merger of hotels is going to be a different playing field. I think that a hotel can get into additional situations in vertical horizontal mergers. It’s going to be big; it’s not going to stay as small.”

Michael Issenberg, CEO, HotelServices Asia Pacific for AccorHotels: “I’ll quote our chairman, Sébastien Bazin, (who) recently said, of all the transactions that he’s done in the last 12 months, if you were to ask him 12 months ago if he was going to acquire those companies, he would have said he hadn’t thought of them. … So, you never know what’s going to happen, that’s for sure, but if I had predict I would say it’s actually going to decrease in pace, not increase.”

AccorHotels, which is celebrating its 50th anniversary this year, has been on an expansion binge lately. Its growth within the hotel industry as well as beyond its borders, has been well documented. Issenberg said the growth has been healthy for the company.

“There is certainly a lot of disruption in the industry, and there are many challenges, but there is no question it’s a great space to be in … not just totally in the hotel sector but the adjacent ones as well,” Issenberg said. “What we believe is important is to make sure that we evolve with the industry, and that’s why we’re not staying 100% to what we call traditional hotels and looking at some other opportunities as well.

“But by saying that, we also have made significant bets within the core of the hotel industry because we have also have been strong by that, and it made different ways to grow. And, of course, as a public company we have the ability to grow.”

Frasers has also been in expansion mode in recent years—including acquiring Malmaison Hotel du Vin Group for $570 million in June 2015. Choe calls his company’s growth strategy a “blue ocean approach” as it searches for unique opportunities such as the 2015 deal while tending to its core serviced apartment business.

“Why compete in a crowded market when you can select and choose a less-competitive space?” Choe said. “The serviced apartment sector has been kind of overlooked by a lot of people, but it’s been wonderful for us because we have 90% occupancy from all the places we are in, and that’s where we’ve been growing.”

Meanwhile, Argaman said there aren’t many third-party management companies in Australia and New Zealand, which keeps the number of transactions to a minimum.

“In terms of where the opportunity lies right now, I think it would be largely organic, but organic doesn’t necessarily have to be slow,” she said. “If we look just at the last 24 months, for example, we’ve had 26 new hotels developing in the pipeline, and certainly more which will be advanced imminently.”

AccorHotels’ Michael Issenberg talks about the planning that needs to take place to merge the culture of two companies involved in industry consolidation. Also pictured: Choe Peng Sum (center) of Frasers Hospitality and Rachel Argaman of TFE Hotels. (Photo: Kat Stanley Photography)

Any expansion by hotel companies is done with the desire to cultivate the experiential element that travelers are seeking, according to the panelists.

“I can’t stay away from using the ‘m’ word because it’s all we use, but we can’t run away from it,” Choe said. “(Millennials) are quite the biggest and fastest growing group. Many of them want to know choices, and even before they book a hotel, they look at all the reviews. They are very knowledgeable. … You’re fighting against the OTAs, you’re fighting against all the other distribution channels. If you’re bigger, you can go into book direct and have your own loyalty program and can offer more offerings. The whole game is changing.”

“It’s very much about a millennial mindset now and understanding what that mindset is,” Argaman said.

Issenberg said age doesn’t matter—it’s the mindset that is changing the hotel landscape.

“… what we’re doing in some of our brand acquisitions and certainly with our own development is … to (provide) greater experiences as part of travel,” he said. “Given that size does matter … it enables people to be part of your loyalty program and then book direct but still have just have a plethora of choice.”

That experience is being driven by the urge to connect—socially and technologically, the panelists said.

“Connectivity is not just the typical technology connectivity; it’s really also part social connectivity and we, too, are changing our lobbies, making them living lobbies—real vibrant and social homes where people connect,” Argaman said. “There’s been a huge transition from the tragic lobbies from the past that were really these tired transition points, and that’s all they were, to now where it’s a home and heart of the hotel itself.”

Issenberg said connectivity is a given in today’s hotel environment.

“If you don’t have connectivity now, forget it; you don’t have a business,” Issenberg said.

The conversation five years ago was about making sure the best technology was in guestrooms, but what’s important now is connectivity throughout a property, according to the AccorHotels executive.

“That’s why we’ve made bets in terms of acquisitions, in terms of specializing in digital technology for hotels … one, to make sure we continue to drive our capabilities forward but also because there are still a plethora of independent hotels, particularly in Europe where we’re based, and … an economy hotel must have connectivity; nevermind a luxurious hotel. It’s the base line of what we need to do,” he said.

Choe said he views connectivity in a slightly different way, and it focuses on the desire of people to connect via reviews and online feedback.

“Experience matters, and we need to take it very seriously because how people enjoy their stay or what they say makes a lot of difference,” he said. “You can have the best product, spend the most money in renovation or whatever it is, but if service is no good, it’s not good. So, in that way, we are connected.”

No Comments

Comments that include blatant advertisements or links to products or company websites will be removed to avoid instances of spam. Also, comments that include profanity, lewdness, personal attacks, solicitations or advertising, or other similarly inappropriate or offensive comments or material will be removed from the site. You are fully responsible for the content you post. The opinions expressed in comments do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please report any violations to our editorial staff.