Analysts highlight most influential hotel M&A of 2019
 
Analysts highlight most influential hotel M&A of 2019
27 DECEMBER 2019 8:19 AM

In this end-of-year roundup, experts analyze some of the big mergers and acquisitions that happened during 2019 and give their perspectives on how M&A activity will trend going into the new year.

GLOBAL REPORT—There were a lot of mergers and acquisitions that occurred in 2019 with a total of 21 deals, and for the most part, there was a unique reason for why each deal happened.

As part of an end-of-year reflection, Hotel News Now reached out to analysts to get their takes on some of the M&A activity that happened during the year.

Transactions in the management space

Michael Bellisario, VP and equity senior research analyst at Baird

“(The Aimbridge-Interstate merger) is kind of a culmination of a lot of management company M&A that has occurred this cycle, mostly Aimbridge and Interstate and a few of the other bigger companies buying smaller, either regional or chain-scale-specific management companies … it fits (the theme) of bigger is better, leverage the technology platforms, the HR capabilities, all the technology capabilities. There's just fewer management companies left to be acquired. It'll be interesting to see what Aimbridge-Interstate does in 2020. I know there's already talk of them thinking about going public, whether it's 2020, 2021, but it (would) be the only publicly traded hotel management company, it will be large, but it'll be interesting to see what they do between now and then to continue to grow. I view that as a one-off transaction because it was Company One, Company Two, and in that industry in terms of size combining, and it was inevitable, but a combination of those two companies was certainly talked about, potentially thought about for a while. I don't think you're going to see another megamerger in the hotel management side on a go-forward basis, because there just aren't big companies left.”

David Loeb, founder, managing director at Dirigo Consulting

“Much like Marriott and Starwood (which merged in 2016), it's (the Aimbridge-Interstate merger) a merger of two giants and creates an absolute behemoth, and I think it will lead to a lot of questioning among smaller management companies about are they big enough? If they're not, how do they get bigger? Do they stay independent? Or do they look for a partner to sell to (and) become part of something bigger? They were both getting so big that it was amazing to have these two giants, but to have them together, it's just unstoppable.

“I think we'll see a lot more consolidation among management companies next year, and the year after and the year after, but I think they'll be much, much smaller deals because I think they will involve smaller companies. There's a lot of scale that you have to build in when you're growing a management business. It's one thing to manage 10 hotels or 20 hotels, when you get to about 60, to grow beyond that, I've heard this from a number of owners who've sold over the years, there's something about 60 hotels. So give or take, maybe it's between 40 and 80, but somewhere in that range, if you want to get bigger, it's costly. You have to have much better HR systems, you have to have much better purchasing systems, you need better IT systems, and so I think for companies that are approaching that size, there's going to be the discussion of do they spend the money themselves and continue to grow organically? Or do they find someone else that they can consolidate with, where suddenly they've got enough critical mass to spend that kind of capital on those systems?”

Thoughts on brand M&A

Dan Wacksman, principal at hotel consultancy firm Sassato

“It seems like in the hotel space, it's a continuation of last year. You’re continuing to see brands pick up, call them tuck-in acquisitions, in order to fill gaps in certain areas, like (InterContinental Hotels Group’s buy of Six Senses Hotels Resorts Spas for $300 million), where they gain this great brand in resort destinations they may not have a strong presence in. And those sort of things you've seen continue. You haven't seen any of the megadeals like we've seen in the past, but, it's just a continuation of that. These companies try to fill gaps in their portfolio, whether it be a geographical gap or a branding gap.” 

Public-to-public REIT transactions

Bellisario: “On a go-forward basis, the stock prices of the three companies that have made acquisitions in a public-to-public transaction, RLJ, Pebblebrook and Park, have underperformed, and I think management teams, investors, companies’ boards, probably today have a higher hurdle for what an (accretive transaction) is and maybe are a little more skeptical about a public market perception to a deal when it gets announced. And on top of it, the fundamental environment for real estate owners has deteriorated the most over the last 12 to 18 months. I think that makes a combination in a way a little bit harder, just because the underwriting divergence of whether it's the acquiring company or the to-be-acquired company, could probably vary a little bit more. From a public-to-public market perspective, public-to-public M&A transaction perspective, I would be surprised if we saw another large-scale transaction in the next 12 months.” 

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