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#GLF18 | MKG Insight: What's up, Doc, in the lodging industry?

Vanguélis Panayotis, president MKG Consulting, presented a geopolitical outlook of the hotel industry. The new players on the market - hybrid models and third-party managers - have made it possible to outline the importance of the brand/destination/quality triptych of the asset, which has become a real lever for creating value.

“This insight currently emerging. It is clear that we are shifting from traditional to more holistic methods. We are upping our game.”

Regarding performance, the ranking of the top ten hotel groups worldwide – which was subject to the impact of mergers, acquisitions and consolidations in recent years – is relatively static on January 1, 2018. The leaders are tightening their ranks and leaving little room for change.

Despite Wyndham Worldwide’s acquisitions and sales in recent weeks – the acquisition of La Quinta (+ 100,000 rooms) and AmericInn (+ 12,000 rooms) as well as the sale of Knights Inn - the hotel group remains behind the Anglo-Saxon InterContinental Hotels Group. AccorHotels, meanwhile, is gaining strength in Asia-Pacific, particularly in New-Zealand, with the acquisition of Mantra Group (+ 17,000 rooms), confirming its targeted acquisition strategy.

Moreover, brands are changing their territories and giving way to a phenomenon of acquisitions of corporate models with Best Western acquiring Sweden Hotels, AccorHotels acquiring Mantis, Jin Jiang / Louvre Hotels Group acquiring Hotel & Préférences and pre-fusion Starwood, Marriott International with Design Hotels. In just a few years, the logic of soft branding has entered operations at major traditional hotel groups.

From 2013 to 2015, the dynamic was essentially driven by groups beneath the top 10. But in the last three years, mergers and consolidations have proved that the top 10 have entered an acceleration phase.

In Europe, change is slow. The most noteworthy movement is that of Fattal Hotels which climbed from 28th to 19th position thanks to the acquisition of Jurys Inn. Moreover, B&B Hotels acquired SIDORME and Scandic acquired Cumulus thereby strengthening their geographic positions. At the other end of the spectrum of the global ranking, a dynamic is taking shape beneath the ranking.

In light of the composition of this ranking, it is interesting to observe the presence of four Anglo-Saxons, two Americans and to British as well as French, Chinese, and Spanish. The acquisitions of Louvre Hotels and Radisson Hotels Group as well as China’s economic influence on the sector rebalanced results. In 2000, what nationalities were most present among the groups? France was the leader with the groups Louvre Hotels Group and AccorHotels that owned around one third of rooms in Europe. The other nationalities, meanwhile, only represented 6%. Eighteen years later, things have changed and the Spanish regained the head of the ranking. Whether in terms of visitors, revenues or number of rooms, they have become the real challengers. There are no large Spanish groups but many mid-sized operators. The same is true in Germany.

Are EBITDA multiples overheating?

From a financial point of view, traditional investors and franchisees look at transactions apprehensively, despite the development of ratios in the hotel sector. In the West, the capitalization of U.S. property markets, listed on the stock exchange, allowed an acceleration of 1.1 trillion dollars of investment in real estate, or 60 billion dollars invested in hotel assets.

“Do we like the EBITDA? Aren't we in a new cycle that doesn't play with the same rules and the same software as we have known in recent years, because there are new actors? There is increasing talk of banks and institutional funds seeking to diversify their investments into different categories of asset classes. The hotel industry has now emerged as an asset class in its own right. Which is good news.”

Despite Donald Trump's desire to relocate, the sector remains extremely stable and posts a return of 7.2% due to a speculative effect. The relocation of active classes aren't numerous, but not alarming, the key is to anticipate it as much as possible. Consequently, the 5% increase in the United States, corresponding to 1-1.5% in Europe, reflects strong growth potential. With some real estate firms specializing in the sector, European investment suggests a significant acceleration, while this figure will increase more gradually in the United States.

“The golden rule means the one with the gold sets the rule. I owe this citation to Georges Sampeur. You said it to me one day, and I found it to be spot on. It is clear that gold is changing hands between operators and owner-operators. All that is being redefined.”

In fact, more hybrid models such as private equity funds redefine formats and power dynamics, while at the same time seeking meeting points. With the help of their walls, their funds, their operating expertise, these players (NOVUM or Grand City Hotel) are starting to create their own brands and are gradually joining the top brands at the national level. In addition, American and European third-party managers are increasingly entering the market and tipping the scale. Pioneers such as Mr. Dubrule, Mr. Pélisson, Bill Marriott and Conrad Hilton left room for these new models. So the sector is changing.

"Americans know what the balance of power is, especially in business but not only. The relationship between the brand, investors and operators in the US has a clear boundary. The balance of power is clearly notched. So can't we exploit it with our own brands or without brands?"

All in all, this restructuring phase offers many opportunities in terms of investment, the whole is to know how to quickly evaluate the market and to accompany this change.

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