Accor’s Bazin: Expect more consolidation
Accor’s Bazin: Expect more consolidation
10 DECEMBER 2015 8:47 AM

Sébastien Bazin, CEO of AccorHotels, expects the number of big players in the hotel industry to dwindle considerably when all is said and done.

NEW YORK CITY—Of the hotel industry’s seven major players, only three will remain when this wave of consolidation comes to an end, according to Sébastien Bazin, chairman and CEO of AccorHotels. 
His Paris-based company kept things moving on Wednesday when it announced an agreement to acquire FRHI Holdings Limited from Qatar Investment Authority, Kingdom Holding Company of Saudi Arabia and Oxford Properties, an Ontario Municipal Employees Retirement System company for total consideration of approximately $2.8 billion ($840 million in cash and 46.7 million Accor shares valued at approximately $2 billion, according to an investor presentation).
The announcement comes the same week that Shanghai-based Homeinns Hotel Group entered into a definitive agreement and plan of merger with BTG Hotels Group (HONGKONG) Holdings Company Limited. 
“Obviously Marriott/Starwood is one of the first steps in that direction,” Bazin said Wednesday during a conference call in New York to announce the deal. “None of the other five have any pressure to do anything. Each of us are independently viable; each of us has enough profitability to sustain growth and please our shareholder base. 
“But each of us is facing more and more money being spent in digital, in keywords, in Google dependency, which is why those likely consolidations are going to be happening because it is very synergistic to put brands together, put loyalty programs together, and very synergistic to put digital strategies together,” he added.
Though the ink barely has dried on the deal to acquire FRHI Holdings (and is still subject to regulatory and shareholder approval, and is expected to close during the second quarter of next year), Bazin isn’t counting AccorHotels out of further M&A activity.
That’s why the proposed acquisition was structured the way it was—funded primarily by 46.7 million new shares of Accor valued at approximately $2 billion and a cash payment of $840 million. 
“Never ever in this last three months of negotiations did we consider paying for this acquisition in (all) cash,” Bazin said.
He wanted to leave plenty of gunpowder left in the kegs of HotelInvest, AccorHotels’ ownership division, to fund further deals. 
HotelInvest already has been active of late. Earlier this month, the company acquired three hotel portfolios in Europe representing 29 hotels (3,677 rooms), for a total of €284 million ($310.8 million).
“This is absolutely not to the detriment of HotelInvest, nor is it to the detriment of anything else,” Bazin said of the proposed FRHI acquisition.
About that purchase price …
Analysts were not shy in questioning AccorHotels’ winning bid for FRHI Holdings, given the flurry of recent M&A activity from which to draw comparison.
On the conference call, they asked Bazin if they have overpaid for FRHI with a total consideration based on 13.8 times 2016 expected earnings before interest, taxes, depreciation and amortization, post synergies. 
By comparison, Marriott’s deal to acquire Starwood was closer to 11 times EBITDA. 
“We’ve been paying attention to the price being offered from Marriott to buy Starwood, which is surprisingly low as far as I’m concerned,” Bazin answered. “But the story is yet to see what the outcome’s going to be, because shareholders are going to have to decide whether the price is right.” 
He also pointed to the differences between the two portfolios. While Starwood’s portfolio includes some poor performing hotels and many others in secondary and tertiary markets, the FRHI portfolio comprises high-end, iconic assets in key destinations worldwide. 
“All the hotels are profitable, some much more so than others,” Bazin said of the FRHI portfolio. “It is a very lucrative machine, which is why a lot of capital is being put into the system to further boost the (revenue per available room) and profit margins. There’s no black cat in the portfolio.”

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