MergerMarket / Deal Reporter
* Hotel group seen hungry for deal
* Intercontinental among few targets
Hyatt Hotels (NYSE:H) is likely to seek a transformative deal, with Intercontinental Hotels (NYSE: IHG) as its top prospect, in the wake of StarwoodHotel & Resorts Worldwide’s (NYSE:HOT) planned sale, three industry bankers and an analyst said.
Starwood, the Norwalk, Connecticut-based hotel chain operator, is in the midst of a bidding war between peer Marriott International(NASDAQ:MAR) and China’s Anbang Insurance. Anbang’s unexpected approach came months after Starwood ran a competitive sale process and was close to completing a USD 12bn sale to Marriott.
Hotel groups are locked in a once in a lifetime consolidation event, with more deals expected beyond Starwood, the first banker said. “The feeling in the industry is now or never. Many of these companies have gone back and forth with each other over the years, all it really took now is onedomino to set the course of action.”
Michael Cahill, CEO Hospitality Real Estate Counselors, a hospitality advisory boutique, said the pressure to merge comes as foreign acquirers look to high-end real estate as a hedge against volatility and the rise of online travel research counteracts the historical benefits of hotel brands.
If Marriott wins the battle for Starwood, Chicago-based Hyatt will be pushed to renew its pursuit of Denham, England-based Intercontinental, two bankers and the analyst said.
If Anbang is victorious, the potential value of a Hyatt-Intercontinental merger still would not be diminished given the scale and geographic benefits, the analyst said. In this scenario, a Hyatt merger with Marriott also becomes a possibility, the first banker said.
The analyst said that a tie-up between Hyatt and Intercontinental, which owns its namesake brand along with Holiday Inn and Crowne Plaza, “is a matter of time.” This view is broadly shared by others following Hyatt, the analyst said.
From proxy statements surrounding the Marriott-Starwood discussions, it is clear Marriott was competing with Hyatt for Starwood, a demonstration of Hyatt’s interest in a transformative deal, the analyst said.
Hyatt is smaller than Intercontinental, but given its desire to be a buyer, its brand cache, and its willingness to pursue the much larger Starwood, it would likely prefer to structure a deal where it could emerge as the controlling entity, the second banker and analyst said. Hyatt and Intercontinental have market capitalizations of USD 6.6bn and USD 9.47bn, respectively.
Speculation of a Hyatt-Intercontinental tie-up has occurred periodically before, some of which has been captured in the press, the first banker said.
In October there was talk that a deal was close, but that speculation was later squashed by Intercontinental management which said it was not looking at a merger. The Financial Times also reported in April 2015 that Hyatt had sought to purchase Intercontinental for about USD 9bn, with a press report by Independent reporting that the deal was rejected because it was not viewed by InterContinental’s board as sufficient value.
The second banker said a Hyatt-Intercontinental merger makes sense as a way for Hyatt to gain a global footprint.
Hyatt CEO Mark Hoplamazian, who has been CEO since picked to run the organization by the Pritzker family in 2006, is perceived as an executive who would like to make “his mark” and a deal with Intercontinental would be one means to accomplish this goal, this banker said. The Pritzker family controls a 75% voting stake in Hyatt through a trust following a 2009 IPO.
In February Hyatt hired a CFO with a background in deal-making strategy. That same month, Hoplamazian told investors that Hyatt is constantly looking for acquisitions around the world to pick up brands or platforms. “It remains definitely an opportunity for us,” he said.
The number of suitable merger partners for Hyatt is limited, with Starwood and potentially Marriott out of the picture and Hilton viewed as an unlikely M&A partner for Hyatt given its already large size, the second banker said.
The first banker agreed, arguing that while Hilton could consider a deal with Marriott, it is the least likely of the large hotel operators to pursue a transformative merger. Hilton already has a strong international footprint, although it could benefit from stronger offerings in Latin America and the Caribbean, the banker said.
The second banker cautioned that Marriott and Starwood are seen as having more interchangeable brands than Hyatt and Intercontinental. Hyatt’s brands target an upscale traveler, while InterContinental’s Holiday Inn, has a more main street customer. Even so, a deal makes sense as a way for Hyatt to gain scale and geographic reach, this banker said.
The first banker said it is precisely because IHG and Hyatt are so different that a deal would be logical. Executives and boards in the space are realizing that diversification is key within price points, geographies, and target consumers. Especially in the age of surging e-commerce offerings, adding a bit more value to Hyatt's portfolio would not be a bad thing, the first banker said.
Geographically, an acquisition of IHG would broaden Hyatt and diversify it globally, the banker said. IHG has around 700 hotels in Europe and520 in China, while Hyatt has only about 100 open or in development. China and India have been big focal points for Hyatt's international growth too, the banker noted.
There's a bit of overlap with Hyatt House and IHG's Staybridge Suites brands on the extended stay side and a small overlap Crowne Plaza side for IHG. But Hyatt-Intercontinental would be a pretty typical transaction, the first banker said and some hotels could be sold or shut down in areas where there is overlap.
Hyatt and InterContinental did not return calls for comment.