Accor/IHG: checked out
The fallout from the pandemic will be ugly and consolidation is a smart move
When crisis hits, consolidation tends to follow. The stricken hotel sector could be in next in line. French group Accor is mulling a bid for London-listed InterContinental Hotels Group, reports French newspaper Le Figaro, although no approach has been made. In response, share prices barely budged. Investors are rightly sceptical.
In some respects, the two businesses would be a good fit. Geographically they complement each other. A deal would catapult the combined company into top position, after trailing far behind leaders Marriott and Hilton. There might be benefits from combining reservation systems and loyalty programmes, though Marriott’s $12.2bn acquisition of Starwood in 2015 shows the scope for difficulties on that score.
When it comes to financing, Accor boss Sébastien Bazin might be able to tap private equity, the industry where he used to work. But that will not make the numbers add up. Back on March 19, Accor’s market value was 27 per cent larger than that of IHG. Now IHG is a third bigger. Its paper is much more highly valued, with an enterprise value-to-2022 ebitda of 13 times, compared with 9 times for Accor, says Richard Clarke of Bernstein. Compounding the difficulties, this week S&P downgraded Accor’s credit rating to junk.
Of the two, Accor has been harder hit by the pandemic than IHG. Europe, its biggest market, was largely closed. Moreover, it owns more of its hotels than IHG does, even though it is moving fast to an asset-light model. Hotel owners are more vulnerable in a downturn than those groups which can collect management or franchise fees.
The fallout from the pandemic will be ugly. A tenth of business travel may have gone for good, Mr Bazin thinks. But the shakeout could drive more small players to partner with Accor — including the Travelodge hotel owners that want to change brands after a dispute over rents. The creation of a world leader in hospitality through a merger is probably not on the cards. But consolidation of a different sort should still provide opportunities to grow.