Merger and acquisition activity in the hospitality industry in the past six months has declined from the prior six-month period, according to a new PwC report, and the deals that have taken place have been concentrated at the upper end of the market.
Acquisitions of properties in the luxury, upper upscale and upscale tiers represent 73 percent of all hotel deals in the past six months, "the highest concentration we've seen in two years," according to the report.
"This aligns with increased revenue per available room expectations in these segments," according to PwC.
The value of the completed deals, however, in the past six months has increased markedly from the prior six months, due in part to the sale of Caesars Entertainment for $17.6 billion. Even without that deal, value was higher because of the concentration of interest in the higher end of the market and the challenges involved in building new hotels, according to the report.
"New-build economics remain difficult to underwrite, as construction costs, financing costs, and entitlement timelines are obstacles to ground-up projects," according to PwC." So acquiring, repositioning, and converting premium assets, whether independent-to-brand or upscale-to-luxury, has become the preferred path to scale."
PwC also suggested that integrated hotel wellness programs—not just "a treadmill and a juice bar"—are proving attractive to essential to acquirers, and added that some buyers are asking whether a would-be hotel acquisition target's "customer data is clean enough to actually drive personalization and direct bookings," driven by AI.
"Operators that can't answer those questions are seeing bids suppressed or even withdrawn, while those with direct customer relationships and Al-enabled operations are commanding premiums."
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