The fundamentals have not changed much over the past couple of years. Continued industry fragmentation (the top brands only account for approximately one third of hotel rooms globally) coupled with low RevPAR growth environment (2.9% in 2018) – limiting organic growth – and the need to create value has made hotel brands and operators seek for consolidation opportunities. For hotel brand operators, a merger with/acquisition of another brand represents the prospect of a larger distribution platform, broader customer base and offering, expanded loyalty programs, integration synergies (i.e., cost reduction) and further expansion of their asset- light strategy through the leverage of scale. On the same note, hotel owners generally realize the benefits of such transactions too, whether in the form of lower distribution costs (i.e., increase production from brand channels vs. OTAs) or improved pricing from suppliers through the procurement of more favorable terms, to name a few. The aforementioned is clearly not without its challenges as a higher number of competing hotels from the same brand family clutter local markets and radius restrictions become a hot topic of HMA (Hotel Management Agreement) negotiations.

For third-party management companies, strategic acquisitions of smaller industry players trigger a somewhat different set of value drivers (addressed below). Unlike hotel brand operators, third-party managers do not sell franchises, or offer access to loyalty programs or a vast distribution platform. Further, third-party hotel management services have become increasingly competitive which challenges organic growth. Hence, beyond financial performance, a stronger focus is placed on ownership mix, length of HMA term, contract churn, retention and re-link.

The high-levels of M&A activity are expected to continue well into 2019 but rather than attempting to become bigger, hotel brands and third-party management companies will seek transactions that provide a strategic edge whether to fill a segment void or improve geographic presence. As such, during the first three months of the year we already saw companies such as Best Western entering the upper upscale and luxury segments through its acquisition of WorldHotels and InterContinental Hotels venturing into wellness after it acquired Six Senses Hotels, Resorts & Spas. This is much similar to Hyatt’s expansion of its luxury offering via its acquisition of Alila (which is primarily present in Asia) or the independent/lifestyle segment via Joie de Vivre, both through the acquisition of Two Roads Hospitality.

Capital players such as PE firms and sovereign wealth funds continue to seek for acquisition opportunities that extend beyond single asset purchases and into operating platform. Interestingly, this comes as no surprise given the healthy exit multiples that these buyers may be able to realize once the performance of the individual hotels has been improved and the target has realized the identified synergies – which in our experience have the potential of increasing EBITDA by 2x – allowing the owners to spin off the OpCo and create yet another valuable asset to be sold.

This article is part of our Conference Materials Library and has a PowerPoint counterpart that can be accessed in the Resource Libary.

HospitalityLawyer.com® provides numerous resources to all sponsors and attendees of The Hospitality Law Conference: Series 2.0 (Houston and Washington D.C.). If you have attended one of our conferences in the last 12 months you can access our Travel Risk Library, Conference Materials Library, ADA Risk Library, Electronic Journal, Rooms Chronicle and more, by creating an account. Our libraries are filled with white papers and presentations by industry leaders, hotel and restaurant experts, and hotel and restaurant lawyers. Click here to create an account or, if you already have an account, click here to login.

On November 16, 2015, Marriott International announced its $12.2 billion acquisition of Starwood Hotels and Resorts Worldwide. The deal is the largest acquisition in the hospitality industry since Blackstone Group bought Hilton Hotels & Resorts for $26 billion in 2007.

If the deal goes through (as is expected in mid-2016), the combined company will emerge as the largest hotel company in the world, encompassing 30 hotel brands, 5,500 hotels under management, and 1.1 million hotel rooms worldwide.

According to Fitch Ratings, this acquisition marks the beginning of a possible increase in M&A activity in the hospitality sector. This Article briefly explores this trend and its potential implications on the industry, including the impact on owners, franchisees and hotel developers.

 Increased Hotel M&A

The predicted rise in hotel consolidations is largely attributed to the sector’s evolving landscape. In addition to expected competition among the established industry players, large hotel chains are increasingly facing competition from popular new alternative lodging arrangements such as Airbnb and other companies that focus on short-term rentals. Experts explain that scale is particularly important in the hospitality industry, with the most profitable companies being those with the most rooms in the most locations.

The rapid growth and success of Airbnb has seemingly also had an effect on companies ancillary to the hotel industry, such as travel websites, as evidenced by Expedia’s recently announced takeover of Orbitz Worldwide, Travelocity, and HomeAway (a site that allows owners to rent out their homes for longer stays).

Many experts believe that the sheer size and breadth of the Marriott holdings following the acquisition could prompt other hotel companies to join forces with smaller operators to avoid being outpaced in the market. This transaction will likely cause other companies to consider mergers when they had not considered them an option previously.

Fitch Ratings also suggests that REIT privatizations will play a large role in upcoming hospitality acquisitions because of better access to low cost debt. This prediction comes largely in response to Blackstone’s announcement in September that it had finalized an agreement to acquire lodging REIT Strategic Hotels & Resorts in a deal worth approximately $6 billion.

 Implications for Hospitality Players

While the Marriot-Starwood deal is certain to impact shareholders of both companies (in fact, it already has, with Marriott shares rising and Starwood shares falling after the announcement), the deal, and others like it, will likely also have a significant effect on hotel owners and developers.

• Owners Face Fewer Franchise Options

As hotel companies merge to form larger hotel conglomerates, the differences between individual hotels will fade. These new consolidations may offer less flexibility and unique character differentiations as newly merged hotel chains strive to achieve uniformity across their locations. Owners looking to meet specific demands of local markets will find fewer options that truly meet their unique business needs.

• Owners Lose Leverage

Fewer hotel companies also means less competition. Therefore, in addition to having fewer choices, with less players in the market, owners will face a reduction in bargaining power when choosing a franchisor and negotiating a franchise agreement. This problem could affect even those owners with hotel properties in highly desirable areas.

• Opportunities for New Market Entrants

Although this trend towards increased M&A will likely have some negative implications for the industry, this shift may also open up opportunities for new entrants into the market. As the larger brands merge and create less specialized, more uniform franchises, new, smaller hotel brands may have the opportunity to gain a market share by catering to the unique demands of owners looking to maximize value in individual locations and among new consumer classes.

***

Practical Law Real Estate offers hotel owners and developers, and their counsel, a variety of resources related to hotel property transactions:

• Practice Note, Hospitality Law Overview.

• Standard Document, Hotel Due Diligence and Closing Checklist.

• Standard Document, Hotel Acquisition Due Diligence Request List.

• Standard Clauses, Description of the Property and Excluded Property in a Hotel Purchase and Sale Agreement.

• Standard Clause, Licenses and Permits (including Liquor License) Clause in a Hotel Purchase and Sale Agreement.

• Branded Hotel Franchise Arrangement Chart.

• Branded Hotel Management Arrangement Chart.

Practical Law Real Estate also features Toolkits comprised of resources to assist counsel to purchasers and sellers in corporate stock, asset acquisition and merger transactions, where real estate assets, among other assets, are involved in the transaction. These Toolkits contain resources to assist counsel at every stage of the transaction, from due diligence to post-closing:

• Real Estate in Asset Acquisitions Toolkit.

• Real Estate in Stock Acquisitions and Mergers Toolkit.

Practical Law provides legal know-how that gives lawyers a better starting point.  Our expert team of attorney editors creates and maintains thousands of practical resources across all major practice areas.  We go beyond primary law and traditional legal research to allow you to practice more efficiently and improve client service.

To learn more about Practical Law, look for them at The Hospitality Law Conference 2016

There are a few notable insights into the market for general counsel and in-house attorneys from a recent report released by Major, Lindsey & Africa.

“The [inside counsel] market seems to be pretty stable,” Miriam Frank, vice president and global head of client services at Major Lindsey & Africa’s In-House Practice Group, told InsideCounsel based on the 2015 In-House Counsel Compensation Report. “It’s not different from what I expected to see a couple of years ago.”

Looking at the numbers seen in 2014, Frank offers a word of caution: Many general counsel and some in-house counsel are getting a lot of compensation that is not reported in the report’s charts because it is classified as equity. The whole package needs to be evaluated when comparing numbers, she said.

When it comes to the salary paid to general counsel versus what is paid to other attorneys in the company, remember that there are usually many attorneys, but only a single general counsel.

“There’s only one general counsel for company,” Frank said. “Companies are more flexible with general counsel.”

In contrast with general counsel for all company sizes, the median total cash compensation for all in-house lawyers is in a “remarkably tight range,” the firm’s report said.

In addition, base salaries paid to general counsel are “in a fairly tight range,” the report said.

Also, the compensation paid to general counsel with 20 to 30 years of experience appears higher than those with 30 to 40 years of experience. It is a reflection of the more veteran general counsel having been in their current jobs for a longer period of time. Those with more experience have not had job changes in recent years.

“When you change jobs, you tend to increase comensation,” Frank said.

Overall, general counsel with 20 to 30 years of experience tend to be paid more than their more junior or senior counterparts.

In additon, because bigger companies tend to be publically held, general counsel in companies where revenue exceeds $5 billion, may receive other kinds of compensation, such as equity, which does not show up in salary and bonus reports.

Another finding is that total compensation for all in-house counsel seems to be highest at the point in their careers which is 15 to 30 years after their graduation from law school. On the other hand, median base salaries for all in-house lawyers appear to exceed $200,000 at about 15 years of experience. They then are “fairly tightly clustered for the remainder of their careers,” the report said.

Here are some noteworthy amounts seen in the report. General counsel total compensation by company revenue during 2014 has a median that ranges from $311,750 to $607,188 for companies with revenue up to between $4 and 5 billion, and falls to $512,588 with companies with revenue over $5 billion.

On the other hand, lawyer total compensation by company revenue has a median between $197,294 and $257,000.

Also, general counsel base compensation has a higher median for such sectors as pharmacy at $350,000 and health at $362,500.

View the original article here.

Recognizing the need to ensure that privacy and data security protections remain effective as data collection capabilities evolve, lawmakers in the US and abroad have been active on both the regulatory and enforcement fronts. This trend is likely to continue as technology and consumer behavior combine to enable the collection and analysis of increasing amounts of detailed information about individuals.

Companies must understand how the dynamic legal framework governing this area applies to their businesses and ensure their policies and procedures are compliant. This article will address:

• The regulatory framework governing privacy and data security in the US.
• Federal Trade Commission (FTC) and other federal and state regulatory activity.
• The advertising industry’s efforts to self-regulate online behavioral advertising activities.
• High-profile privacy and data security litigation.
• Recent and proposed federal and state legislation.
• Noteworthy cybersecurity developments from regulatory authorities and the private sector.
• Selected international developments that may be significant for US companies.

To download the Trends in Privacy and Data Security article, click here.

Republished with permission of Practical Law.
Originally published on Friday, April 3, 2015
339 views at time of republishing

Originally published on Tuesday, October 14,2014
1723 views at time of republishing