Deals set Accor up for growth, control in lifestyle
 
Deals set Accor up for growth, control in lifestyle
30 NOVEMBER 2020 9:45 AM

Accor’s recent deals with Ennismore and SBE, along with its plans to take full ownership of Mama Shelter and 25hours Hotels, position the company for controlled expansion. 

PARIS—Accor has not allowed the COVID-19 crisis to stop its growth in the hotel lifestyle space.

Accor’s 24 November deals with Ennismore and SBE to create a new combined company under the Ennismore name to focus on lifestyle hotels represents the company’s strategy to scale up and take more control over its small-but-growing lifestyle division, Gaurav Bhushan, now co-CEO of Ennismore, told Hotel News Now.

The combined Ennismore at inception has 12 hotel brands with 73 operating hotels, 110 in the pipeline and approximately 70 in active discussion.

Pre-deal, Accor’s piece of that group—its lifestyle division—constituted 5% of Accor’s operating revenue.

“But it is 25% of the pipeline, and growing, and that is where the opportunity is growing,” he said. “Now is the time we need to get absolutely serious, to set it up to be scalable. We’re looking for a differentiated, accelerated experience, and we realized we needed to set that up as an autonomous section, with the best people and the right set-up.”

“We have great growth in all parts of the world,” Bhushan said. “Yes, most active in Europe, that constitutes 50%, with the U.S. the second largest, but going forward Asia-Pacific and the Middle East will take a bigger chunk. Now they are about 10%, but it will grow to 25%.”

The newly combined Ennismore will act as umbrella over the Accor brands Jo&Joe, Mama Shelter, SO, Tribe, 21c Museum Hotels and 25hours Hotels; Ennismore’s two brands The Hoxton and Gleneagles; and the SBE brands Delano, Hyde, Mondrian and SLS Hotels. Accor’s hotel/office initiative WorkingFrom also will fall under Ennismore.

Sam Nazarian, the former CEO of SBE, stays at the helm of the Disruptive Restaurant Group, which operates SBE’s restaurants and nightlife brands, and joins Accor as a “special advisor, according to a news release.

SBE has 22 hotels in operation and a pipeline that has doubled to 40 since 2018.

Accor already has sold two SBE hotels—the 878-room Hudson Hotel in New York City and the 191-room Delano South Beach in Miami, both to Eldridge’s real estate investment arm Cain International.

Investment plans changing
Across the formation of its lifestyle division, Accor has preferred to invest in hotel firms and brands, not purchase them outright, to benefit both from the experience and management within those brands and the ability to scale them, via its own management, development and distribution.

That will change, Bhushan said.

For example, Accor owns 30% of 25Hours and initially owned 50% of SBE.

Bhushan said Accor’s 100% buy of SBE’s management business and hotels will be replicated for other brands within the new umbrella, notably MamaShelter and 25Hours.

He said the management and spirit of those brands’ founders—Serge Trigano at Mama Shelter and Christoph Hoffmann at 25Hours—will remain involved and in mind.

“It is a cash-free merger that puts the respective businesses into one entity, the most amazing portfolio of brands in the lifestyle sector. It also comes with cost synergies for a more profitable business.

“It was always the plan to ultimately buy out the remaining stakes (in part-purchased brands), it is just that we have accelerated the move. Now we will develop and protect these brands,” Bhushan said.

“It was a very important part of striking the deal, bringing (these people) along for the journey. They bring so much value. They are the founders, and that cannot be taken away,” he added.

First-mover advantage
Monique Pollard, director, equity research, Citi, said the news was notable in that conversations in the investor community now are focused on how the larger hotel companies are structuring their capital allocation and that this is the first example of an answer from one such firm amid the crisis.

Bhushan said Accor only started talking to Ennismore in the summer.

Pollard added that in the SBE deal, Accor’s assumption of the debt will allow it to expand the SBE brand on its own terms.

“This is definitely not a distressed asset,” she said, and added the deal could be seen as being expensive.

“Particularly in the current environment, even if the number is a multiple of earnings. To put it in context, (Accor) paid $390 million for the first 50% of SBE and now is paying not too far from that in this very different year.

“(Accor’s) point will be that it has doubled the pipeline, if it comes in the next four years, and they must have that confidence that comes through,” Pollard said.

Alex Brignall, research analyst and partner, transport and leisure, at finance brokerage Redburn, said Accor had alluded to this deal happening a while ago.

“(Accor) are just separating the brands, which they want, from the assets, which they don’t,” he said, referring to the ownership of the real estate involved.

Bhushan said the Ennismore name also means something in the industry.

“It is a logical combination. I have known (Ennismore founder Sharan Pasricha, now co-CEO with Bhushan) for years, and Ennismore has an incredible management team. There is great scale for development and loyalty, to take the best of both teams under one platform with a common value system for a cutting-edge portfolio,” he said

Of the SBE deal, Bhushan said it was necessary to restructure the company to secure the brands and hotels but not the real estate or restaurants components.

Pollard said the Ennismore deal and its re-creation will allow all the lifestyle brands within the new umbrella to be managed separately and with focus.

“Another advantage is what will recover quickest: leisure, not corporate. That is the sense most commentators have. They will be looking at the scale potential for all these brands, how they can be sized,” she added.

Pollard said executives at Accor and Ennismore have said the goal of the new lifestyle platform is that it should achieve earnings before interest, tax, depreciation and amortization of €100 million ($120 million) by the mid-term, although she is undecided as to what that timescale would be.

Bhushan said the deals have not come about now due to anything related to COVID-19.

“What we are building is a scalable business that has real authenticity, something that is of vital importance in an asset-light structure,” he said.

He added that Accor still holds some ownership, notably leases in Australia with its Mantra brand, but that those will be offloaded when the timing is right, which is not right now.

“Accor is well above 90% asset-light. The right time to sell is when the market allows that. Now is not the time,” he added.

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