How do international hotel companies benefit from M&A?

According to JLL’s Q3 2024 Global Hotel Investment Trends report, total hotel transaction volume reached USD 42.1 billion in the first nine months of 2024, an increase of 13.6% on the same period of the previous year. This growth was driven by a number of large deals and robust market fundamentals, reflecting strong investor interest in the sector.

By region, Asia Pacific is projected to record total hotel investment of USD 12.2 billion in 2024, up 4.3% on 2023. This growth is underpinned by favourable economic conditions and a strong recovery in tourism across key markets.

Indeed, international hotel companies have tended to expand through mergers and acquisitions (M&A). Examples include Marriott International’s acquisition of Starwood Hotels & Resorts Worldwide, Accor’s acquisition of Mövenpick Hotels & Resorts and InterContinental Hotels Group’s (IHG) acquisition of Six Senses Hotels Resorts Spas. The number of M&A deals in the global hotel industry rose from just three in 2014 to 21 in 2019, indicating a sustained upward trend.

M&A can be classified according to several criteria. By the relationship between the parties, vertical M&A takes place between businesses at different levels of the same supply chain; horizontal M&A takes place between businesses competing in the same market; and conglomerate M&A combines businesses with no direct competitive or vertical supply relationship. By geographical scope, cross-border M&A takes place between businesses in different countries and may at the same time fall into any of the categories above.

Some hotel companies pursue M&A to expand into different segments, to acquire new brands associated with more current products, or to enter new geographical markets. InterContinental Hotels Group, for instance, acquired Six Senses Hotels Resorts Spas to add this renowned high-end resort brand to its luxury portfolio, enabling it to compete with rivals whose luxury brand portfolios already span many resort destinations and major cities. Hyatt Hotels acquired Two Roads Hospitality to gain a portfolio of lifestyle brands and extend its presence into 23 new markets, strengthening its lifestyle- and wellness-oriented offer for affluent guests.

Meanwhile, some companies pursue horizontal M&A to increase their market power through operational and financial synergies. The merger of Marriott International and Starwood Hotels & Resorts Worldwide, announced in 2015, for example, envisaged a combined company with more than 5,500 managed and franchised hotels, representing approximately 1.1 million rooms worldwide, and was expected to deliver at least USD 200 million in annual operating cost savings by the second year after the merger.

Several studies confirm that international hotel companies can benefit from M&A. Specifically:

Stronger brand recognition

Some experts argue that expanding the brand portfolio enables international hotel companies to increase recognition, attract investment and optimise profitability through centralised marketing services and lower operating costs. Some researchers, however, are concerned that overlap between brands can confuse customers, weaken competitiveness and complicate management. Accor and Marriott International, for example, each own dozens of brands, leading analysts to question the sustainability of such portfolios, particularly during a downturn. In short, a multi-brand portfolio is only truly effective if each brand has a clear identity and creates distinct value.

A broader portfolio of products and services

Mergers allow international hotel companies to broaden their product portfolios, offering a range of business models from full-service to extended-stay, and so to attract a wider pool of investors. Large hotel companies also have an advantage when bidding for projects, owing to their diverse portfolios and their ability to offer more flexible contract terms. However, the M&A trend may reduce competition and narrow hotel owners’ choice of partners.

Although international hotel companies control nearly 48% of global room supply, concerns about monopoly remain inconclusive. In short, a larger brand portfolio after a merger can create further investment opportunities, but it also brings new challenges in contract negotiations.

Greater market share and bargaining power

Once they become leaders in certain regions, international hotel companies can set price levels that competitors must follow, helping affiliated hotels to increase revenue. In addition, by virtue of their greater scale, merged companies can negotiate lower commissions with online travel agencies (OTAs), reducing booking costs for hotel owners. Overall, control of a large market share provides financial leverage that enables hotel owners to achieve higher profit margins.

Stronger loyalty programmes: strengthening loyalty programmes helps international hotel companies to reduce their reliance on OTAs and maximise profit for hotel owners. Loyal guests tend to be less price-sensitive and to spend more, creating opportunities for international hotel companies to cross-sell across brands and sustain higher rates. M&A transactions expand customer databases, increase direct bookings and reduce operating costs, which is particularly important in a downturn. M&A thus delivers strong corporate synergies, contributing to sustainable growth across the entire hotel chain.

Advancing technology

M&A brings both benefits and risks for technology platforms in the hotel industry. After consolidation, international hotel companies can draw on economies of scale to spread the cost of technology development, improve operational efficiency and enhance the guest experience. The process, however, also carries cybersecurity risks, as illustrated by the Marriott International data breach following its acquisition of Starwood Hotels & Resorts. This shows that, alongside capturing the benefits of technology, international hotel companies must adopt rigorous risk management strategies to protect data and the interests of hotel owners.

Continuity

International hotel groups pursue M&A primarily to expand their brand portfolios, that is, to diversify products and segments faster than they could through internal development, and to sign franchise and management agreements that place their brands on more properties developed by hotel owners. Some international hotel groups own both the real estate and the brands in markets where they must invest in physical assets to secure a presence, but this model is becoming less common with the growth of the asset-light strategy, which allows them to expand more quickly with lower capital investment.

International hotel groups pursue two main business models: asset-light and asset-heavy. These respectively allow them to earn fees by permitting hotel owners to use their brands and related operating resources without acting as operator, or to become full or partial hotel owners while managing the hotel assets under their own brands. M&A is therefore clearly a fitting growth strategy for international hotel groups. However, M&A is a process that takes international hotel groups many years to complete from the outset.

Many issues can arise along the way, and the impact of M&A on hotel owners is far-reaching. International hotel groups must therefore ensure that every M&A plan is carefully considered and prudently executed, while maintaining transparent communication with hotel owners and the public.