HOTELS ’ InvESTmEnT OuTLOOk
Mapping
M & A
Post-crisis consolidation usually knocks out the weak gazelles . after the Pandemic , only a few alPhas should feel safe .
Contributed by Mary Scoviak
Consolidation always comes after a crisis . The strong buy the weak ; industries get healthier with all that chaff gone and stakeholders get happier as enterprises grow . But COVID-19 wasn ’ t just any crisis . And , the wave of M & As it could trigger coul Ian Schrager Personal < Ian @ ianschragercompany . com > d carry away hotel companies that wouldn ’ t have been vulnerable in any other scenario .
The giants — the Marriotts , Hiltons and Accors — shouldn ’ t have much to worry about . Hilton has no major credit facilities due this year . Marriott International announced a US $ 1.5 billion , 364-day revolving credit facility commitment and leverage covenant waiver for existing revolving credit facility in late April . Accor has US $ 2.7 billion worth of cash on hand and an undrawn US $ 1.6 billion credit facility . But never say never .
“ Shareholders might provide the impetus to consolidation at this level ,” says Paul Slattery , director , Otus & Co ., London . “ They ’ re looking for options if performance is suffering and returns don ’ t meet expectations . Take Marriott ’ s acquisition of Starwood Hotels & Resorts — that consolidation saved Marriott hundreds of millions of dollars . Lenders won ’ t be able to ignore that . Big deals are inevitable when driven by shareholders and lenders .”
While Michael Bellisario , director , equity senior research analyst , R . W . Baird , doesn ’ t foresee giants buying giants , he ’ s not ruling out big-deal consolidation altogether . “ If there ’ s a once-in-a-lifetime opportunity to acquire something like , say a company with the cachet of Four Seasons , and the conditions are right , big caps like Blackstone might buy .”
Overall , mid-sized companies with heavy exposure in hard-hit sectors such as big box , city center convention hotels or fly-to leisure destinations that could jump start consolidation starting next year . At the same time , small companies hamstrung with limited negotiating or buying power
Companies like these are CirCling their wagons . the appetite for m & a is huge . they ’ re going to have to put strategies in plaCe to proteCt themselves from beComing targets .
HoMi vazifdar on coMpanieS Struggling witH caSH flow and debt Service and any company struggling with cash flow problems or failing debt service could , too . “ Companies like these are circling their wagons . The appetite for M & A is huge . They ’ re going to have to put strategies in place to protect themselves from becoming targets ,” says Homi Vazifdar , CEO , Canyon Equity , Larkspur , California .
Private equity shops could target platforms with potential , especially those that can ’ t keep up with cap ex or PIP requirements and need cash infusions to tap a repositioned upside . Bigger brands and well-capitalized tier-two players hoping to fill gaps cost-effectively ( think wellness concepts , sustainability infused flags and startups ) could grab hot niche concepts . “ It ’ s not a good time to be a young brand unless you have a robust pipeline in place ,” says C . Patrick Scholes , managing director , lodging , leisure and gaming equity research , SunTrust Humphrey .
Whether bargains or best in class , smaller fish in Europe and Asia had better swim faster . Martin Smura , CEO , Kempinski Hotels , Geneva , sees some new twists on consolidation as groups fend off the sharks . “ We have to look at the opportunities that are arising from this situation . Consolidation is one , but it doesn ’ t only mean takeovers . Smaller operators who don ’ t have cash to buy each other might start looking at how to join forces ,” he says .
22 hotelsmag . com June 2020