THERE IS NO INDICATION THAT DISTRESS WILL EITHER MANIFEST ITSELF OR WILL TRIGGER A FLOOD OF SALES . LONDON IS ARGUABLY THE WORLD ’ S STRONGEST HOTEL MARKET .
RUSSELL KETT
The year 2021 started slow , but has gained meaningful momentum on the back end of Q1 as COVID restrictions subside and focus turned to re-opening and post-COVID operating environment . We expect a return to the consolidation trend at the multi-branded operator level , to be followed by an emergence of a plethora of regional boutique players across all segments ( select-service , fullservice , luxury and hostels ) who have private capital sources and are pushing for rapid growth .
H : How will improving performance fundamentals impact M & A ?
RK : As London gradually opens up – theatres , attractions , events and so forth – the leisure market in particular will be attracted back . Likewise , the return of international travel will follow . The return of business travel will be a key factor – thereafter there should be improvements in the MICE sector . Hotels should gradually reopen for business , not necessarily all in one go , and gradually bring back their staff from furlough . Banks need to start lending again , once the fundamentals improve . DM : Ample equity and debt capital availability following the initial COVID shock may drive a continued strong M & A environment . Strong operating performance on the back of meaningful pent-up demand across all customer groups ( including corporate , which may come back much earlier than all initial expectations ) may dictate a move to forward transaction multiples ( as opposed to pre-COVID multiples ).
RK : Given that there is always more demand than supply the bid-ask spread should be no different than before . DM : Expect bid-ask spreads to vary extensively across transactions . Sellers will be unwilling to trade for smaller multiples unless forced to , to avoid missing out of the re-opening recovery . The abundance of capital and liquidity , as well as the number of players sitting on significant dry powder , is expected to put a floor on prices , but is unlikely to drive any excesses given the uncertainty that still abounds .
Bid-ask spreads may also be bridged by a combination of creative transaction structuring or buyers inviting sellers to keep some ‘ skin-in-the-game .’ For example , consider the recent Sunstone- Montage Healdsburg transaction .
We have seen a recent surge in interest by North American F & B operators ( and their private equity firm backers ) in large format and luxury London restaurant real estate and operators ( who have survived ). Clearly , this indicates that they believe that those businesses will come back and perhaps have some of the ‘ roaring ‘ 20s ’ exuberance .
H : How will current pipeline expectations impact M & A ?
RK : Not at all . DM : We expect existing pipeline and the emergence of meaningful privatelyfunded competition to drive a return to the consolidation trend . Additionally , post-COVID we may see asset owners and operators moving away from large , big-box single assets , which would be sized down or partially reconverted ( residential , office , etc ) to a larger number of diverse , small-scale assets in the same markets .
H : Any further comments on issues like bid-ask spread , etc .?
BID-ASK SPREADS MAY ALSO BE BRIDGED BY A COMBINATION OF CREATIVE TRANSACTION STRUCTURING OR BUYERS INVITING SELLERS TO KEEP SOME SKIN-IN-THE-GAME .
DAVID MONGEAU
May / June 2021 hotelsmag . com 29