Mergers and acquisitions of hotel management companies minimize some labor issues
Third-party hotel management companies are firmly in the spotlight this year as hotel owners seek operational efficiencies across the board while striving to keep hotels welcoming to guests willing to pay full price.
Mergers and acquisitions have been happening at a rapid pace in recent months: in October, Benchmark Global Hospitality and Pyramid Hotel Group merge. PM Hotel Group acquired Paramount Management Associates last fall and more recently Modus Hotels. Aimbridge Hospitality has taken over Prism Hotels & Resorts in December, and TPG has acquired Marshall Hotels & Resorts end of 2021 as well.
Third-party management executives and hotel owners told a recent Lodging Industry Investment Council meeting that the current M&A environment is unforgiving.
Owners are looking for optimized margins, flexibility and personal attention. Managers know that it is increasingly common to have to contribute financially to the transaction and also realize the need to be creative in staffing and creating value.
“We need to come to a better and more efficient operating model,” said Chris Diffley, chief investment officer at Rockbridge. Management companies “must provide data and best practices. We need to figure out how we can operate these hotels more efficiently and leverage this information across assets and put it to use for owners.
Steve Kisielica, director of hotel acquisition firm Lodging Capital Partners, said bench strength is an important factor when his company chooses a management partner.
“We have to make sure that the operator has resources in the market we are buying from, because it is very difficult. If we have a change of general manager, or a furlough from a salesperson or a chief revenue officer, we cannot afford to let three months pass before that person is replaced,” he said. . “I think the merger and acquisition of a management company can help that.”
But some hotel owners remain concerned that growing management companies comes with increased risk “they’re growing too fast and could distract from my asset,” Kisielica said.
Flexibility and competitive fees are also key considerations for landlords, he said.
Although the list of requirements may come under greater scrutiny today than in the past, management company executives have their eyes wide open in today’s operating environment, the managers said. speakers, and focus on demonstrating the value they bring to the table.
Increasingly, this comes at a price.
“A few years ago, this notion of a wallet didn’t really exist at the management company level,” said Doug Dreher, president and CEO of The Hotel Group. “It became an expectation almost overnight.”
“We invested more with the developers,” Dreher said. “We’ve always thought like an owner. We have a seat at the table that we wouldn’t have if we were just on the management side.”
In July 2021, ownership and management company Hotel Equities entered into a strategic alliance with The Hotel Group to accelerate growth by focusing on hotel development and acquisitions.
Tom Prins, director of TQP Capital Partners and partner at management company Hostmark Hospitality Group, agreed that management companies need to be clear from the start about what they can bring to a deal.
“We have to be creative,” he said. “When we get a contract or are in the running for a deal, we need to paint a picture of the asset’s story, where we can take it from a branding and capital perspective.”
All of these factors are making mergers and acquisitions of management companies increasingly attractive to stakeholders, the speakers said.
Work also plays a huge role.
“It’s all about the asset team,” Diffley said, adding that if management companies “can create a pipeline of talent and opportunities to move them around, great.”
Julienne Smith, senior vice president of development, transactions and asset management for IHG Hotels & Resorts, said building a labor pool comes down to “the ability of the hospitality industry creating careers for people”.
She said large-scale management companies “have the ability to move people and promote them” that smaller companies don’t.
“Consolidation helps that because you’re leveraging market expertise, you’re leveraging analytics, but you also have the ability to develop talent within our industry,” she said.
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