Smaller Hotel Buys In Store

<B>Smaller Hotel Buys In Store</B>

By Bruce Serlen

With Starwood Hotels and Resorts's mega acquisition of Sheraton and Westin, and Hilton Hotels' purchase of Promus quickly fading into the past, analysts say hotel deals in the foreseeable future are likely to resemble the two transactions announced last week: small, strategic and friendly.

For travel buyers, the ultimate effect of Bass Hotels & Resorts's acquisition of Bristol Hotels & Resorts, and Olympus Hospitality Group's acquisition of Chalet Susse International, may well be the same: a consolidating industry with more power concentrated in fewer hands. In terms of negotiating rates for a national--or global--hotel program, this conceivably would mean less flexibility and more "towing of the corporate line."

Conversely, it also could signify greater consistency as large hotel companies impose uniform procedures and quality standards across their entire portfolio. Similarly, it could mean the availability of more investment dollars for such things as technology upgrades.

Referring to last week's transactions----Daniel H. Lesser, senior director for the hospitality industry practice at Cushman & Wakefield in New York, said, "The days of the large acquisition may appear to be over for the time being. But the atmosphere is certainly still right for small deals like these. Critical mass remains important, though this doesn't necessarily mean bigger is better. Rather, it's who best integrates all the properties in a portfolio so that they are all performing at their peak."

The goal, he said, is to expand the distribution channel as deeply as possible. Lesser cited Marriott International and Starwood as successful examples of this. Hotel companies, he said, must have "various brands at various price points that cater to different types of travelers," including core business travelers in different parts of the world.

"What you don't want is to have a gap anywhere so that your guest has no choice but to stay with a competitive brand," said Jack Corgel, Ph.D., managing director of applied research in the hospitality research group at PKF Consulting in Atlanta. "Hotel companies generally are searching for a workable growth strategy right now, with their stocks languishing on Wall Street. One scenario would be for a company to make a series of small acquisitions as opposed to one large deal. Certainly in terms of integrating the acquired company, it's easier to absorb a series of modest bites than one large meal."

At some point, the industry runs out of large acquisition candidates to target, said consultant Scott Brush, president of Brush & Co. in Miami, "though we haven't necessarily reached that point yet. More of an issue is the question of consistency: How do you bring all the hotels within a certain brand up to the same standards so business guests know what kind of experience they're likely to have?"

Bass is the world's fourth-largest hotel company with more than 2,700 properties operating under a variety of flags and price points. Dallas-based Bristol, by contrast, has 112 hotels under lease or management. "A majority already fly one of our flags, including Crowne Plaza and Holiday Inn, both full and limited service," said Tom Arasi, president of Bass Hotels & Resorts of the Americas in Atlanta. Most of the properties are owned by FelCor Lodging Trust.

An open question is what will become of the 29 properties that don't carry a Bass flag. These include Fairfield Inns and Hampton Inns. Bass wouldn't comment. Brush said the chain either could reflag the sites or get rid of them.

"Bristol had an excellent reputation as a manager and all those systems remain in place," said Corgel.

Arasi said the acquisition will strengthen the chain's management capabilities in the North American market. "For the travel buyer, it will now be easier for us to package the properties when it comes to negotiating contracts on a regional as well as national basis," he said. "Plus there will be ample opportunities to cross-sell brands like Inter-Continental and Holiday Inn as part of a hotel program."

The Olympus Hospitality Group acquisition consists of ownership of 27 Chalet Susse economy hotels plus franchise and/or management agreements for seven additional Chalet Susse outlets. All are located in New England or the Mid-Atlantic.

For Olympus, an impetus for the deal was location. "The properties tend to be located in strategic, high-barrier-to-entry markets, which are currently enjoying strong revenue growth," said David B. Deniger, president and CEO. Olympus plans to invest in thorough renovation of the properties, which will be managed by the Paramount Hotel Group.

Earlier this year, Scottsdale, Ariz.-based Olympus brought four niche brands--Unique Hotels, Park Plaza International, Park Inn International and Rockresorts--under the Olympus umbrella, and said it is aggressively on the lookout for additional growth opportunities (<I>BTN</I>, Jan. 24).

While none of the industry analysts foresee a major acquisition in the offing, they know better than to categorically rule anything out. "It's the nature of the business," said Robert Mandelbaum, director of research information services at PKF Consulting in Atlanta. "People were saying that there wouldn't be any more major deals last year as well. And the next day, Hilton announced its plans for Promus.