It's a bit awkward, isn't it? To be back where we were five
months ago. Marriott International is buying Starwood Hotels & Resorts.
It's as true now as it was on Nov. 16, when the deal went public, and yet so
much has happened.
We've outlined a whole timeline
of the Starwood sale process, so I don't intend to repeat it all once more
here. But let's go over the bullet points of the past month. Starwood agreed to
be acquired by Marriott. A Chinese consortium led by Anbang Group Insurance Co.
submitted an unsolicited, all-cash takeover bid of Starwood. Starwood accepted.
Marriott came back, with more cash this time. Starwood accepted. Then Anbang
came back once more with even more cash.
The cash is important here. It's what made the Anbang offer
so desirable to Starwood shareholders. That, and the perception that such an
arrangement would allow Starwood to continue on its same path while gaining
some advantage in Chinese markets. But the cash also could be one explanation
for why Anbang pulled out. On Monday, a
story in The Wall Street Journal
revealed that Anbang was a player in the Starwood bidding war long before this
March—and that it has some murky ownership, just as an aside. The company
reportedly submitted three unsuccessful bids for Starwood but finally pulled
out of the dealings altogether when Starwood pressed for further details about
financing. Maybe the same thing happened this week.
Another theory that's already gotten a lot of play is that
Chinese regulators would obstruct Anbang's purchase of Starwood. Chinese
business news site Caixin
Online reported that an Anbang buy of Starwood wouldn't be allowed by the China
Insurance Regulatory Commission because Chinese insurers can't invest more than
15 percent of their assets abroad. That's a problem for a company that's
already paid $2 billion for the Waldorf Astoria New York and promised The
Blackstone Group $6.5 billion for Strategic Hotels & Resorts. Maybe that's
what happened. As Bjorn Hanson, a clinical professor at New York University's
Tisch Center for Hospitality and Tourism, told me last week, it's difficult to
find someone who's an expert on the hotel industry and Chinese insurance regulations.
There are a few things at play in the
Starwood-Marriott-Anbang love triangle. One is the China factor. Anbang isn't
alone in its aggressive pursuit of U.S. assets. As of the end of February, 2016
foreign acquisitions by Chinese companies already reached $81.5 billion,
and many of the companies involved in the deals are relative unknowns to Wall
Street banks. Sound familiar? The
suggestion is that as confidence wanes in the Chinese economy, Chinese
companies are trying to flex their muscles and spend their money elsewhere.
There's been some
speculation that if Anbang doesn't get Starwood, it will go after
InterContinental Hotels Group or AccorHotels or NH Hotels. How much that holds
up now that Anbang's pulled out—that I don't know. But it does bring me to the
next piece of the equation in all of this: industry consolidation.
Back in February 2015, I reached out to Hanson to talk about
hotel mergers and acquisitions. It was right after Marriott announced its plans
to buy
Canada's Delta Hotels and Wyndham announced it would
acquire Dolce Hotels and Resorts. It was also two months after IHG
bought Kimpton. I wanted to know why these deals happened when they did and
if there were more deals to come. Yes, he said, there would certainly be more
M&A activity, especially the type that has larger companies buying up
smaller and midsize companies. Why now? This always happens at the top of a
cycle. Large lodging companies have experienced a handful of very good years,
and they have strong balance sheets they need to put to work. Acquiring another
brand or company is more appealing than buying back stock—and these deals also
help the smaller companies steel against tougher times ahead. Hanson's
prediction of more activity turned out to be accurate; in addition to the
Marriott-Starwood merger, we saw AccorHotels
buy Fairmont and Commune
and Destination agree to merge, and now there's talk of a
Carlson sell.
But there's more to the push for M&A this time around,
too. Lots of analysis
out there attributes the current consolidation to hoteliers' desire to guard
against the new kid on the block who doesn't play by the rules: Airbnb. It's a
pretty sexy scapegoat. I don't know if I buy it as the culprit, though. More
likely, what's behind the industry's most recent round of consolidation? Online
travel agencies. It's no secret that hoteliers have been trying to wrangle
power back from OTAs. AccorHotels CEO Sébastien Bazin has been particularly outspoken
against OTAs, saying last year that they were a "mutation" of the
industry and are suffocating independent hoteliers. Recent hotelier behavior,
such as Accor's welcoming of independent hotels onto its online
marketplace and the various initiatives encouraging guests to book direct (see: Hilton's "Stop Clicking
Around" campaign), also points more to OTA challenges than Airbnb.
So if hoteliers are more worried about OTAs than
Airbnb, what is key? Size. Best Western Hotels & Resorts CEO David Kong
told me at the Americas Lodging Investment Summit in January that BW is less
worried about the OTAs because BW has scale, more than 4,000 properties worth
of it. With the Starwood-Marriott union, Marriott will be the largest hotelier
in the world. They won't need OTAs as much, and so they can negotiate better
terms. But OTAs are publicly traded companies that will need to make up that
lost revenue somewhere. Kong suggested they would do it on the backs of hotel
companies that have less scale. "So that landscape I think is actually
going to cause some mergers and other things to happen in our industry, because
we need scale,” he told me “Everybody needs scale." There we have it.