Hospitality brands are leading the pack in merger and acquisition deals this year, but an improving macroeconomic climate could see more real estate investors pile in, according to experts in the sector.
This year, big deals including IHG’s acquisition of Ruby Hotels and Marriott International’s takeover of citizenM have set the pace for brand growth. “The hotel brand companies all have a growth agenda and are looking for ways to achieve that,” says David Kellett, head of hotel capital markets, EMEA, Savills.
“There has been an incredible brand growth story in recent years. If you look back over the past decade, many brand-owning companies have at least doubled the number of brands in their portfolios since 2015—some have tripled,” he adds. Kellett notes that most are pursuing “capital light” strategies in which they acquire the brand and / or operating company but often leave the real estate in the hands of landlords.
Asset-light growth
This was certainly the case with InterContinental Hotels Group’s takeover of Ruby Hotels this year, an asset light operating company in impressive growth mode. IHG’s £110.5 million deal for the business saw the hospitality giant acquire the European brand and platform, plus the rights to roll Ruby out in the US. The brand, with 20 hotels in Europe at time of acquisition, has achieved a net compound annual growth rate (CAGR) of 26 percent over the last five years. The tie-up allows Ruby to draw on IHG’s powerful enterprise platform of distribution and technology systems, as well as its significant hotel loyalty programme, IHG One Rewards.
Said Elie Maalouf, IHG CEO at the time of the takeover: “The urban micro space is a franchise-friendly model with attractive owner economics, and we see excellent opportunities to not only expand Ruby’s strong European base but also rapidly take this exciting brand to the Americas and across Asia, as we have successfully done with previous brand acquisitions.”
Marriott International’s $355 million takeover of citizenM is similarly structured. In buying the citizenM chain, with 37 hotels across more than 20 cities in the US, Europe, and Asia Pacific—plus two more pipeline properties—Marriott expects to turbocharge its brand growth and leverage its loyalty platform still further. “Marriott has proven success in growing select-service lifestyle offerings, including our AC, Moxy and Aloft brands, and we look forward to accelerating citizenM’s global reach with our guests and Marriott Bonvoy members around the world,” said Marriott CEO Anthony Capuano on signing the deal in July.
This article originally appeared on Hotel Management's sister site Hospitality Investor.