Mergers and acquisitions are nothing new in the hotel world, but a recent flurry of deals, most notably the pending $26 billion acquisition of Hilton Hotels Corp. by private equity firm Blackstone Group, is bringing about a seismic shift in hotel company ownership that could have long-term ramifications for meeting planners.
And the trend may just be gathering steam. Some industry analysts believe that more buyouts of major public hotel companies by private investors are likely to follow.
“The entire hotel industry is on the auction block right now,” said Jim Butler, a Los Angeles-based hotel industry lawyer and chairman of Global Hospitality Group.
Similarly, hotel industry consultant Stephen Hennis, president of Denver-based Hospitium, observed that “there are a lot of other big hotel companies that could be bought out. Rumors have been swirling around Starwood for the past year.”
The Hilton purchase, the biggest hotel deal in history, is the latest in a string of recent hotel company acquisitions by Blackstone Group, which include Wyndham International, La Quinta Corp., Meristar Hospitality, and Extended Stay America. Even without Hilton, Blackstone controls over 100,000 hotel rooms.
In mid-July Dolce International, a leading operator of conference center hotels, announced that it was selling an 85 percent stake in the company to Broadreach Capital Partners, a private equity real estate firm. Other recent acquisitions include last April’s $4 billion sale of Four Seasons Hotels to an investors consortium that includes Bill Gates’ Cascade Investments and Saudi Prince Alwaleed Bin Talal’s Kingdom Hotels.
Why are investors so eager to scarf up big hotel chains these days? The chief reason, according to analysts, has to do with the record profits enjoyed by many hotels in recent times.
“Hotels are looked at as a really good investment now, comparing really well to other kinds of real estate,” Hennis said. “Room rates have been rising for the last three years and are expected to remain strong.”
For their part, hotel executives at the companies under acquisition say the new investors will supply the capital for significant expansion.
According to a statement issued by Hilton Hotels Corp., “Blackstone intends to invest in the Hilton properties and brands to enhance and grow the business for the benefit of owners, franchisees and customers.”
Similarly, Andy Dolce, chairman of Dolce International, stated that the deal with Broadreach Capital will enable the company to double in size over the next five years by adding new properties in the U.S., Europe and Asia.
According to Hennis, an important ramification of this latest spate of hotel acquisitions is that they often mean the transfer of a public company into private ownership.
Hennis believes it is likely that Blackstone will consolidate some of its brands with Hilton brands.
“For instance, Blackstone luxury hotel brands such as LXR and London could become part of Hilton’s Waldorf=Astoria Collection, which Hilton wants to grow,” he said.
Butler is among industry observers concerned that further consolidation in the hotel industry may not be good news for meeting planners.
“The concentration issue is a big one,” he said. “Will there be only one or two hotel companies to negotiate with? Is there any competition to keep hotel rates fair for consumers? Have you noticed how hotel prices and rates seem to go up after every billionaire or equity fund buys it?”
