Third-party hotel management companies are firmly in the spotlight this year as hotel owners seek operating efficiencies at all levels while still striving to keep hotels inviting places for guests willing to pay top dollar.
Mergers and acquisitions have happened at a rapid clip in recent months: In October, Benchmark Global Hospitality and Pyramid Hotel Group merged. PM Hotel Group acquired Paramount Management Associates last fall and more recently Modus Hotels. Aimbridge Hospitality picked up Prism Hotels & Resorts in December, and TPG acquired Marshall Hotels & Resorts in late 2021 as well.
Third-party management executives and hotel owners said at a recent meeting of the Lodging Industry Investment Council that the current mergers-and-acquisitions environment is cutthroat.
Owners are looking for optimized margins, flexibility and personal attention. Managers know it’s becoming increasingly common to have to contribute money to the deal, and also realize the need to be creative with staffing and creating value.
“We’ve got to get to a better, more efficient operating model,” said Chris Diffley, managing director of investments at Rockbridge. Management companies “have got to be bringing data and best practices. We have to figure out how we can operate these hotels more efficiently and draw on this info across the asset pool and bring that to bear for the owners.”
Steve Kisielica, principal at hotel acquisitions firm Lodging Capital Partners, said bench strength factors in heavily when his company chooses a management partner.
“We have to make sure the operator has resources in the market we’re buying in because it’s so hard. If we have a GM change, or salesperson or revenue manager leave, we can’t afford to have three months go by before that person is replaced,” he said. “I think management company M&A may help that.”
But some hotel owners remain concerned that with the growth of management companies comes a greater risk “they grow too fast and might take their eye off the ball on my asset,” Kisielica said.
Flexibility and competitive fees are also key considerations for owners, he said.
While the list of requirements may have more scrutiny today than in the past, management company executives have their eyes wide open in today’s operating environment, speakers said, and are focused on showing the value they bring to the table.
Increasingly, that comes with a price tag.
“A few years ago, this notion of key money didn’t really exist at the management company level,” said Doug Dreher, president and CEO of The Hotel Group. “It’s almost overnight that’s become an expectation.”
“We’ve been doing more investing with the developers," Dreher said. “We’ve always thought like an owner. We have a seat at the table that we wouldn’t if we were just on the management side."
In July 2021, ownership and management company Hotel Equities struck a strategic alliance with The Hotel Group to accelerate growth by focusing on development and hotel acquisitions.
Tom Prins, principal at TQP Capital Partners and partner at management company Hostmark Hospitality Group, agreed that management companies have to be clear up front about what they can bring to a deal.
“We have to be creative,” he said. “When we get a contract or are in the running for a deal, we have to paint a picture of the story of the asset, where we can take it from a branding and capital standpoint.”
All of these factors make management company mergers and acquisitions increasingly attractive to stakeholders, speakers said.
Labor plays a huge role as well.
“It’s all about the team at the asset,” Diffley said, adding that if management companies “can create a talent pool and opportunities to move them around, great.”
Julienne Smith, senior vice president of development, transactions and asset management for IHG Hotels & Resorts, said building labor bench strength comes down to the hotel industry’s “ability to create careers for people.”
She said management companies with large scale “have the ability to move people and promote them” that smaller companies don’t have.
“Consolidation helps that because you leverage market expertise, you leverage analytics, but you also then have the ability to grow talent within our industry,” she said.