INVESTMENT
assets .
The relatively strong owner / lender banking relationships contribute to the lack of pressures to sell at distressed pricing . There may be a few weaker players forced to sell , but it ’ s likely their assets are not that desirable for the buyers in the market .
There may also be a few owners with prime assets that are similarly rethinking their asset holdings strategy and keen to sell , but not likely at the price most buyers are considering .
This will vary by individual market outlook on whether the buyer-seller price gap can be narrowed based on recovery views .
H : How will improving performance fundamentals impact M & A ?
EL : Besides the obvious , I expect that improving fundamentals will increase instances of distress / stress related M & A activity in Asia … reason being governments cannot afford to continue supporting the industry ( at least to same levels ) indefinitely and bank regulators will also tighten up on banks . Banks will sort through loans and naturally form opinions on a case-by-case basis rather than the blanket “ almost everyone ” and get more aggressive with clients they view to be in more difficult positions …
Rebounds in markets like Maldives have totally changed the mindset of many an owner and many will be less seriously in need of a life ring , but still wanting to liquidate to realign a portfolio , improve liquidity or simply harvest an investment .
RH : Improving fundamentals / recovery outlooks will certainly help buyers increase their offers , but probably not enough to narrow most pricing gaps . As for the sellers , it will also embolden them to hold firm on their pricing . Will it make owners decide not to sell ? I suspect most would still sell as long as it ’ s at or near their pricing . They are ready to pass on the residual and potential future trials and tribulations to others .
H : How will current pipeline expectations impact M & A ?
EL : In markets that are going to see additions to supply continue despite the softening of demand , it should exacerbate the supply / demand imbalance and improve chances for increased activity in that specific market . It ’ s the possible prolonged ‘ feeding of an asset ’ that many owners today are concerned about , and that can only encourage them to divest / restructure .
RH : Where pipelines have decreased due to cancelled projects , it would feed into improving market outlooks / valuations mentioned above . Where pipelines have not declined , it will have the opposite effect with buyers less inclined to narrow the pricing gap .
H : Any further comments on issues like bid-ask spread , etc .?
EL : Good times and bad , the spread always exists . In bad times like the COVID era days , there may be more activity instigated by sellers ( their stakeholders / lenders ) and that means that despite their historical perception of value , they will be better listeners .
I really do feel there will be downward movement in hotel values . There has to be in the general consensus of recovery taking three to four or more years to reach 2019 levels . This assumes we do not enter into an inflationary period due to government policy . Asia is a big place and the hotel industry is very different from market to market – some with a dominant domestic component and others that need international travel to thrive . Obviously , not all markets will move in sync .
RH : The price gap in most of Asia is significant , but less so in the mentioned higher M & A activity markets like Australia and Japan , where the markets have traditionally performed at high occupancy / RevPARs and domestic demand components are large .
GOVERNMENT SUPPORTS WILL BURN OFF AND EFFECTS WILL BE LINGERING AND THAT SUGGESTS STRONGLY WE WILL SEE GREATER M & A ACTIVITY .
ERIC LEVY
32 hotelsmag . com May / June 2021