Marriott’s acquisition of Protea Hotel Group’s brands and operations illustrates the company’s strategy to bolster its presence in under-represented regions by finding a local partner.
Updated 9:48 a.m. Eastern Daylight Time, 11 November 2013 with comments from Alex Kyriakidis of Marriott.
REPORT FROM AFRICA—Marriott International has gone from hotel lightweight to heavyweight in Africa via one $200-million deal.
The company signed a letter of intent to acquire the brands and operations of South Africa-based Protea Hotel Group, which manages, franchises and leases 116 hotels comprising 10,184 rooms across three brands: Protea Hotels (104 hotels), African Pride Hotels (10 hotels) and Protea Hotel Fire & Ice (two hotels). The deal would almost double Marriott’s distribution in Africa to more than 23,000 rooms. The deal is expected to close during the first quarter of 2014.
Marriott has nine hotels open in Africa. There are 12 Marriott-branded hotels in the company’s construction pipeline and one Protea hotel in the construction pipeline.
Alex Kyriakidis, president for Middle East and Africa at Marriott, said the company wanted to quickly gain a foothold on the continent via its deal with Protea.
"We could have decided upon continued organic growth, as has our competition, which is fine, but things in Africa take time due to its infrastructure," he said during an interview Monday.
In regions where the company is under represented, Marriott looks to find partners who are already well-versed in the targeted region, said Richard Hoffman, executive VP of mergers and acquisitions and business development for Marriott. He pointed to the company’s joint-venture partnership with Spanish hotel group AC Hotels in 2010 that led to the birth of the AC by Marriott brand.
“This gives us instant credibility (and) penetration,” he said of the strategy during a telephone interview Friday.
Officials at Protea could not be reached for comment on Friday. In a statement, Arthur Gillis, Protea’s CEO, said: “Protea Hotels has grown organically to become the largest and leading hotel group in sub-Saharan Africa. Aligning with a global giant such as Marriott ensures we can realize the group’s full potential for all of our stakeholders. In Marriott, we have found a perfect fit across culture, values and commitment to industry leadership which will ensure that we remain at the forefront of African hospitality.”
That’s a smart course of action for Marriott, said Nikhil Bhalla, an analyst who follows the company for FBR Capital Markets.
“They’re not trying to push a big 520-room hotel down to Africa,” he said. “They are looking to grow in the African region through a brand that already has a presence there.”
He added, “They are spreading their wings in a very localized way.”
Trevor Ward, managing director in the Old Ikoyi, Lagos, office of W Hospitality Group, said the deal means Marriott will have instant access to hotels in Cape Town, South Africa, and Johannesburg without having to go through an arduous development process.
The deal would make Marriott the largest hotel company in Africa in terms of properties, but second behind Accor in terms of rooms, Ward said.
"It was a pretty shrewd move for them," he said.
Kyriakidis said Protea's brands complement Marriott's existing brands.
"Protea has some way to go in South Africa, but in some South African cities it is near the celiling in terms of capacity, but Marriott is not, while in other African countries, Marriott would be restricted due to our presence in them already, but we can build (Protea hotels)," he said. "It's a win-win situation from a development perspective."
Hoffman said Marriott might convert “a few” of Protea’s hotels to Marriott brands, but the majority will remain under their respective Protea flags. Kyriakidis hinted that Protea's Fire & Ice hotels will grow across Africa and into the Middle East.
Bhalla said Marriott could use the same strategy in other regions of the world, including other parts of Europe as well as Asia and China.
“There are definitely deals to be had all around the globe,” Bhalla said.
Speaking during an interview on CNBC Friday, Marriott’s president and CEO Arne Sorenson said a strengthening middle class and strong inbound and outbound travel help make Africa an attractive continent for hotel investment.
“It’s a place with growing economies and that spells opportunity for us,” he said.
Bhalla said Africa is a growth region for the hotel industry.
“There’s a lot of growth in the African continent over the last 20 years,” he said. “It’s similar to what’s happened in Asia over the last 20 years. It’s a well-traveled region, and it will continue to be a well-traveled region.”
The deal puts Marriott in a strong position, Bhalla added.
“They’ll have a first-mover advantage, and they’ll have a foothold,” he said.
Hotel News Now's Terence Baker contributed to this report.