M&A Beyond Borders

Andrew Harrington of AHV Associates outlines some of the key M&A trends in the European hospitality sector.

In the last few years, the European hospitality industry has seen a big increase in cross-border M&A. We therefore thought it instructive to review and examine in more detail these transactions and highlight the factors driving this activity.

Our research has been focussed on corporate transactions between European companies located in different countries, and European investments / acquisitions of non-European hospitality groups.

From a top level point of view, the European hospitality industry exhibits the following key trends and characteristics that are supportive of a high level of M&A activity:
• Strong expected revenue growth rates;
• Market fragmentation and underpenetration of branded product;
• OTA dominance
• Hotels’ flexible investment risk profile amid a period of yield compression

On a micro-level, while each transaction is different, all demonstrate hospitality players’ efforts to strategically reposition in accordance with one or more of the above trends and characteristics.

M&A participants’ key strategic goals can be identified as:
• Swift penetration or consolidation of an existing business in a geography;
• Internationalisation of a hotel group with the addition of a new foreign brand;
• ROI enhancement by a pan-European real estate investor through the acquisition of an operating company
• Gaining exposure to fast growing sectors in the European hospitality market eg extended stay, product focussed on Chinese tourism etc.

Furthermore, deal completions have increasingly been associated with innovative M&A structures such as:
• The sale of different parts of the business to different buyers working together, eg Pandox and Fattal acquiring the real estate and operating company of Jury’s Inn respectively;
• Phased sales with a pathway to full ownership, eg the sale of 51% of Zleep Hotels A/S to Deutsche Hospitality with a pathway to full ownership for DH over time.

The existence of such deal structures in conjunction with the increased transactional activity illustrates the vibrancy of the hospitality M&A market. AHV has participated in this cross-border M&A activity as a financial advisor with both buyers and sellers. We continue to see ongoing interest from hospitality companies in pursuing similar acquisition strategies to grow their business, or to take advantage of these trends to maximise value on a sale.

This article is taken from the executive summary of a report of the same title, published by AHV Associates. Click here to download the report.

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