Many managers see size as best way to compete
Hotels are becoming more hospitable to mergers, as the industry’s shift from owning properties to managing them has created the need for greater global reach.
The sector had sat out this year’s deal boom but is starting to catch up. French hotel giant Accor SA is in discussions to buy FRHI Hotels & Resorts, owner of luxury hotel brands Fairmont, Raffles and Swissotel for about $3 billion, people familiar with the matter said.
Meanwhile, Starwood Hotels & Resorts Worldwide Inc. is in talks to be bought by Hyatt Hotels Corp., people familiar with the matter said, in what would likely be one of the largest-ever hotel deals.
And on Wednesday, Interval Leisure Group said it agreed to buy Starwood’s time-share business for about $1.5 billion.
The hotel industry has posted strong growth for years, but some lodging analysts expect the curve to start flattening out, leading some companies to view mergers and acquisitions as one of the best vehicles for growth. Many hotel operators also see size as the best way to compete in an increasingly globalized hospitality sector.
“It’s become much more clear how important scale is to these companies,” said Ryan Meliker, a hotel analyst at investment bank Canaccord Genuity.
With most of the major hospitality companies getting out of the hotel-ownership business, opting instead to collect fees from management contracts or franchising their brands, the biggest companies can offer more global exposure and a larger customer base to entice hotel owners to their brands.
“With bigger scale, you get better brand recognition, expanded loyalty programs and bigger marketing budgets,” Mr. Meliker said. “These are the sort of things hotel owners look for when picking a brand.”
Hotel analysts said a desire by Hyatt to bulk up likely drove its decision to engage in merger talks with Starwood. Hyatt has about 160,000 hotel rooms, which puts it well behind U.S. rivals like Marriott International Inc. and Hilton Worldwide Holdings Inc., which each boast more than 700,000 rooms worldwide, according to hotel data tracker STR Inc. Starwood has about 350,000 hotel rooms.
The combined market capitalization of Hyatt and Starwood is about $20 billion.
An acquisition can be the fastest way for a hotel company to fill a gap in the type of hotels it offers. Accor, for example, owns the Sofitel luxury brand but no others in the highest-end category.
Fairmont manages a number of famous hotels around the world, including New York’s Plaza, Shanghai’s Fairmont Peace Hotel and the Savoy in London.
Accor is the preferred bidder of four finalists for FRHI and could announce a deal as early as next month, though no agreement has been reached yet, according to people familiar with the sales process.
FRHI, earlier this year hired Deutsche Bank and Morgan Stanley to market the company, the people said.
The three FHRI brands would bring Accor about 115 luxury properties around the world with more than 43,000 rooms. That would roughly triple Accor’s management revenue from the luxury segment, according to industry people familiar with the companies.
Accor has said previously that only about 10% of its revenue comes from management contracts for luxury hotels.
Accor has had a tiny presence in North America since it sold the budget operator Motel 6 to Blackstone Group LP in 2012. A deal for FRHI would include 18 hotels in the U.S.
Toronto-based FRHI is owned by a Qatari government fund and Saudi Prince Alwaleed bin Talal’s Kingdom Holding Company. Prince Alwaleed was spotted with Sébastien Bazin, Accor’s chief executive officer, in the lobby of the Savoy on Wednesday, according to a person at the hotel.
A common connection between Accor and FRHI is the Los Angeles-based investment firm Colony Capital. Mr. Bazin is a former Colony executive, and the investment firm previously owned a stake in FRHI. Colony would be reunited with the luxury hotel company, if a deal is reached with Accor, through its minority stake in the French company.
Meanwhile, Chinese hotel operator Shanghai Jin Jiang International Hotels (Group) Co. is interested in Starwood and is competing with two other Chinese firms to get government approval to make a bid, according to people close to the companies.