Accor to seek opportunities created by weakened Brazil hotel market, South America CEO says - MergerMarket
AccorHotels (EPA: AC), the Paris, France-based hotel conglomerate, is seeking independent hotels to acquire in Latin America, with Brazil a priority, said South America Chief Executive Officer Patrick Mendes.
Brazil’s economic downturn has created acquisition opportunities, Mendes said. “It’s necessary to have critical mass to face the [crisis] effects on the hotel industry. Larger players can handle it,” the CEO noted.
He added that Accor has relevant investments in marketing and distribution platforms, including online sales, which could help independent hotels should they to be sold to Accor.
Accor, which is seeking to increase its hotel portfolio for its clients, is seeking independent hotels in Brazil, said Mendes, who is also a member of Accor’s executive board.
The company plans to open more budget hotels with the ibis Styles brand in South American cities with more than 100,000 inhabitants; mid-range Mercure and Novotel hotels in cities with more than 500,000 inhabitants; and luxury hotels, a niche in which Accor has only one hotel in the region, in Peru’s Valle Sagrado. It also plans to open units in Bogota, Buenos Aires and Curitiba, Mendes said.
Accor’s goal is to consolidate the South American market, especially Brazil, which is considered its third global priority country after France and Germany, Mendes said. Besides Brazil, the priority countries in South America where Accor is seeking targets to expand its current portfolio, are Argentina, Chile, Colombia and Peru, the CEO added.
The company plans to reach 520 hotels in the region by year-end from its current 270, through organic and inorganic strategies, Mendes said. In Brazil alone, Accor plans to reach 400 hotels by year-end, up from its current 240, the CEO added.
Accor’s organic pipeline in Latin America includes 180 hotels in construction or renovation, Mendes said. The CEO added that Accor is “always” in talks with potential targets in the region, without elaborating or giving a timeframe for deals.
“Accor is analyzing many options and is keen to hear more” from potential targets, Mendes said. He added that while the company is M&A “proactive,” many Latin American independent hotels approach Accor interested in joining the company. “Sometimes it is not worthwhile being proactive. The local market is not big and we know the players,” the CEO noted.
Mendes cited the acquisition of 100% of the Mexico-based hotel chain Grupo Posadas for USD 275m, in July 2012, as an example of Accor’s bolt-on acquisition in the region. The deal added 29 hotels to Accor portfolio, divided between Posadas’ own assets and hotels with management contracts, the CEO added.
The company works with its internal M&A team and in Brazil it hires lawyers such as Levy & Salomão Advogados, banks such as Itau Unibanco and Santander, and hotel valuation consultancies such as New York-based HVS International and Chicago-based Jones Lang LaSalle, Mendes said. PwC works on the post-deal integration of targets.
Accor prefers to approach advisors rather than receive pitches, Mendes noted.
Accor reported EUR 5.581bn in revenues in 2015.
Brazil’s hotel market background
Cristiana Moreira, real estate partner at São Paulo-based law firm Barbosa Müssnich Aragão, said it is possible that large hotel chains acquire smaller ones after the recent sports events, the FIFA World Cup and Rio Olympic Games, which generated demand and new hotels.
“I anticipate a consolidation trend,” she added, noting that she is not engaged in hotel M&A talks today nor is she working with Accor.
Hotel chains such as Accor, InterContinental Hotel Group (LON: IHG) and privately held Brazil Hospitality Group (BHG) could take advantage of the opportunities that will arise thanks to Brazil’s economic downturn, Moreira said. She noted that hotel chains could want to expand to Brazil’s inner territory, such as the inner São Paulo State, where there is a lack of standard hotels, and they tend to do it through M&A.
A good target for Accor would be a company with a portfolio of at least 10 hotels with a good branding position, but it is hard to find opportunities in Brazil that match this criteria as the local sector is not mature, said a France-based sector analyst who follows the company said.
The French analyst noted that Accor wants to increase its market share in Brazil, and it is certainly looking for opportunities, fueled by the EUR 2bn the company has available, plus a credit line of EUR 1.9bn.
Brazil’s hotel market is favorable for M&A and is an opportunity for small and mid-sized hotel chains, which may be struggling to remain competitive, said Geraldo Linzmeyer, CEO at CHA Hotéis, a collection of 11 independent hotels in Southern Brazil.
The international hotel chains have been entering Brazil since 1973 and have brought standardization that affected the local players, especially the 25,000 of 30,000 hotels that do not belong to a brand, said Linzmeyer, a former executive at Hilton Hotels and member of Brazil’s National Hotel Association.
“Brazilian currency devaluation turned foreign eyes towards Brazil, making the assets much cheaper and attractive,” Linzmeyer said. In addition, Brazil’s economic recovery will demand investments in new hotels and modernization, such as software management systems, he noted.
CHA Hotéis is in talks with an undisclosed investor and has not been approached yet by a large hotel chain yet, Linzmeyer said. He described Accor’s M&A strategy as “positive” for Brazil and pointed to Brazilian travelers that are keen to be hosted in three-star rated hotels. “Accor could take a look at those hotels,” Linzmeyer noted.o.