Meetings & Conventions: Empire Builders January
As the hotel consolidation game heats up, will meeting
planners pay the price?
BY DANA NIGROI
n the past year's headliner fights, the
battle between Hilton Hotels and ITT Corporation (along with its
late-entry tag-team partner Starwood Lodging) ranked right up there
with "Tyson vs. Holyfield." It was a bout between giants to
determine who will be left standing in a field that many industry
experts predict will contain only a half-dozen major hotel
companies by the next century.
But the acquisition of ITT's hotel holdings was merely the
highest-profile deal among a flurry of consolidation activity in
the past two years. According to Coopers & Lybrand, 1997 topped
1996 as a record year for lodging industry mergers and
acquisitions, with a total of 11 deals valued at $4.52 billion
through the third quarter. With another nine announced deals still
in the works, the total could be as high as $19.48 billion. Among
the big names involved were Marriott and Renaissance, Patriot
American and Wyndham, Starwood and Westin, and Doubletree and
What's driving all this consolidation? Wall Street money,
mostly. "The industry is performing well and it's a good business
to be in right now, so people want to invest," says Robert
Mandelbaum, Atlanta-based director of research for PKF Consulting.
Record occupancies and room rates have helped to attract both the
more traditional private sources of capital and newer, public
But Wall Street is a demanding taskmaster -- it likes growth
companies. "And the quick way to grow a company is to go out and
buy smaller ones," says Mandelbaum. By buying existing properties
instead of building new hotels, a public company gets an instant
increase in revenues and thereby looks more appealing to
Mergers and acquisitions can also provide quick entry into new
geographical regions and new market segments. For example,
Marriott's purchase of Renaissance brought the chain into Asia's
upscale lodging market. In fact, many companies are trying to
become more like Marriott, with numerous brands serving specific
niches, all under one umbrella.
Other companies are relying on acquisitions to expand into
related markets. (Hilton was after ITT largely because it wanted
the Caesars casinos.)
And, of course, combined companies create "economic
efficiencies" -- another Wall Street buzz-phrase. By pooling their
resources, hotel chains can trim staff, boost purchasing power, and
improve their marketing efforts through combined customer databases
and reservations systems.
That's great for the hotels. But with all the CEOs' talk during
these mergers about "creating shareholder value," one begins to
wonder if some of these corporate executives have forgotten about
the end user: the customer.
What will be the fallout of all this consolidation for the
meetings industry? M&C asked consultants, meeting planners and
top hotel executives for their predictions.CHAIN LINKS
major holdings of hotel chains that have made recent
Regent, Radisson, Country Inns & Suites
Hilton Hotels & Resorts, Conrad International, Hilton Garden
Marriott Hotels, Resorts & Suites; Ritz-Carlton; Renaissance;
New World; Ramada International (outside U.S.); Courtyard by
Marriott; Residence Inns; Fairfield Inn/Fairfield Suites;
TownePlace Suites; Executive Residences
Wyndham Hotels & Resorts, Wyndham Garden Inns, Grand Heritage,
Carefree Resorts, Grand Bay, Registry
Promus Hotels Corporation
Doubletree Hotels, Doubletree Guest Suites, Club Hotels by
Doubletree, Red Lion, Embassy Suites, Homewood Suites, Hampton Inn,
Hampton Inn & Suites
Westin, Sheraton, the Luxury Collection, CIGA, Four Points,
Caesars (all pending close of acquisition at press time)
With decision-makers controlling pricing over a greater number of
hotels, expect some upward pressure on pricing, predicts Bjorn
Hanson, chairman of Coopers & Lybrand's lodging and gaming
group in New York City. Hotel companies are being bought for high
prices, he adds, and earnings need to justify those high prices --
another factor pointing to price increases.
The fact that so many hotel chains are now public companies may
keep room rates high as well, says PKF's Mandelbaum. "[Public
companies] tend to be sensitive to shareholder value and revenue
per share and profits per share. It's incumbent on them to really
make the companies look profitable." As a result, they might not be
as ready as independents to discount room rates, and they might be
stricter about enforcing contracts and policies.
But having large public companies committed to hotel ownership
can be a benefit, too. "They are sensitive to the fact that hotels
need a capital infusion every four or five years to refurbish. The
quality of the hotels and the service levels will be maintained,"
In the current sellers' market, it's hard to tell what is an effect
of consolidation and what is simply a natural part of the hotel
industry's economic cycle. So far, while planners find it harder to
get space and negotiate rates, they haven't faced many difficulties
they can directly attribute to the burgeoning size of hotel chains.
But that doesn't mean they aren't concerned.
The obvious worry is that consolidation will mean less
competition and therefore less negotiating power. "It's scary,"
says Debbie Hafer, CMP, meetings director at the National
Association of Home Builders in Washington, D.C. One of Hafer's
concerns is that some major chains have stricter policies than
others on matters such as attrition. And if one of those chains
were to take over a competitor, she might have trouble negotiating
a favorable contract.
"A concern I have from a third-party standpoint is, are the
hotels going to go the same route as the airlines with
commissions?" wonders Michael Hudson, president of Site Search
& Select in New York City. "We work on commission
only....Sometimes, the larger national chains aren't as willing to
Hotel name changes can pose challenges, too, points out
Katherine Christensen, CMP, an independent planner in Phoenix. "It
can severely impact the meeting when the name changes after your
printed promotional materials have already gone out."
Contract debates also may ensue. Jan Stieger booked a meeting at
a hotel that subsequently changed hands. The new owners "were not
honoring all the terms of our outstanding contracts," says the
director of conference planning and education for the California
Pharmacists Association, based in Sacramento. A long battle
followed. Now, Stieger believes planners should include clauses
that allow them to cancel contracts if ownership changes (see "Good Clauses").
Mergers, acquisitions and resulting rebrandings might lead to
inconsistency among properties in a chain, worries Melissa
Hollander, director of meetings and conferences for New York
City-based Executive Enterprises. "You used to be able to count on
a certain chain; now it's not as clear."
And some fear many of their valuable sales contacts will lose
their jobs. However, points out Hollander, those who outlast a
merger "can help you with a larger spread of hotels."
Having more properties under one umbrella "gives you more
opportunities to deal through the same chain," adds Nancy Church,
CMP, president, The Conference Company, Inc., in Boylston, Mass.
"They know you, they know the business you represent. That helps my
clients get a little better deal sometimes."
Some of the consolidation has been driven by the demands of the
customers themselves, points out Mack Koonce, executive vice
president of Wyndham Hotels & Resorts. As companies consolidate
their travel and meetings departments, they find it more efficient
to deal with fewer people who can handle a larger amount of their
business. Once Wyndham and Patriot American complete their merger,
he says, "We'll have salespeople who will be able to represent a
broader set of products and brands to one planner."
This also gives the customers a little more negotiating
leverage. "By having a customer relationship across 200 hotels
instead of 30 hotels, you'll know more about not only the history
of the individual group but that parent company's total pattern,"
says Koonce. Instead of talking to a hotel solely about a
particular 200-room-night event, a planner can also remind his
sales contact that the company uses 20,000 room nights a year.
Paul Novak, Patriot American's executive vice president of
acquisitions and development, feels that customers should benefit
economically "because of the synergisms of larger hotel companies
versus smaller, piecemeal companies." He adds, "[Consolidation]
should give those companies better buying power and their
reservation systems should get stronger."
Plus, with pooled resources, hotels may be better able to handle
the expensive task of keeping up with changing technology -- an
area in which they have typically under-invested, hotel sources
Rampant rate hikes are unlikely, says Roger Conner, Marriott
International's vice president of lodging communications. "Pricing
will be a reflection of the remaining competition in the industry,
economic conditions and the market you are going to. The customer
will continue to have enough impact on how we price."
Market forces will regulate brand consistency, too, says Koonce.
"There is that concern that some companies don't have tight
standards and will take anything in order to grow. If you are a
public company, the pressure is strong. But if you shoot yourself
in the foot and don't have consistent quality, then the customer
doesn't do business with you."
PUBLIC PLAYERS: WHO'S WHO?
Having successfully taken on Hilton in a battle for ITT, chairman
and CEO Barry Sternlicht's name has been splashed all over the news
in the past few months. The 36-year-old head of the nation's
largest hotel real estate investment trust (REIT) also engineered
the purchase of Westin (owned half by his own Starwood Capital
Group). Assuming both deals go ahead as planned, Starwood Lodging
will have more than 650 hotels in 70 countries and $10 billion in
What will Starwood do with two powerhouse brands? In a press
conference following the ITT shareholder meeting, Sternlicht said
he plans to expand both Westin and Sheraton. Under the terms of the
Westin deal, Starwood Lodging Corporation (the operating side of
the paired-share REIT) will change its name to Westin Hotels &
Resorts Worldwide. Its CEO will be Juergen Bartels, who has led
Westin on an aggressive expansion rate of two new properties per
month. Of Starwood's existing hotels, 20 will be converted to
With ITT's chairman and CEO, Rand Araskog, stepping down, it
would seem that Sheraton might be playing second fiddle. But
Sternlicht has said that 80 of Starwood's other hotels could be
branded as Sheratons. And he calls Sheraton's mid-price Four Points
brand "a great growth vehicle for us internationally, particularly
in Asia." Sternlicht also would like to have a five-star brand,
which could be accomplished with a repositioning of ITT's Luxury
Collection to make it more distinct. Sternlicht ended his press
conference with the broad hint that Starwood would be buying
something else soon.
HILTON HOTELS CORPORATION
Now that he's lost his chance to build the world's largest hotel
company by taking over ITT Sheraton and Caesars, is CEO Stephen
Bollenbach giving up on Hilton's growth plans? Not likely -- he'll
just change strategies.
For now, the company will buy full-service hotels one by one.
"There are really no large hotel companies that own the kinds of
hotels we want," said Bollenbach at a press conference following
the ITT stockholders' meeting. "We really want to own real estate;
we don't want to pay a lot for a brand name because we already have
Bollenbach still wants Hilton to be a leader in consolidation of
the gaming industry, but denied a report in BusinessWeek
that the chain is looking at MGM Grand Casinos.
Even without the ITT feather in its cap, Hilton had a busy year.
With the integration of Bally Entertainment Group into its system,
Hilton became the world's largest gaming company. Its alliance with
Ladbroke Group PLC, owner of the Hilton name outside the United
States, began to bear fruit. The two companies integrated their
sales offices and marketing efforts, expanded the HHonors loyalty
program worldwide and began building a new joint central
reservations system. And the new mid-market Hilton Garden Inns
brand had 50 properties open or under contract by the end of
When it comes to the big deals of the next few years, it's almost
certain Marriott will be somewhere in the picture. "We are a
consolidator and plan to continue to be," says Roger Conner, the
chain's vice president of lodging communications. Recently,
Marriott announced plans to merge its food services and facilities
management division with a European company. The new Marriott
International spin-off will be more focused on its lodging business
than ever. Even more importantly, it will shed the vast majority of
its debt -- and can therefore take a large amount back on for
The company's stated goal is to have 2,000 properties by 2000.
By early this year, Marriott should have hit the 1,500 mark. The
purchase of the Renaissance Hotel Group in March 1997 gave the
chain 150 additional properties across three brands -- Renaissance,
New World and Ramada International -- as well as an alliance with
the previous owner for future development. But the deal was really
important in that it roughly doubled Marriott's presence outside
the United States, from representation in 30 countries to more than
50, says Conner.
For now, Marriott is focusing on expanding through construction
and conversion. With 10 hotel brands covering nearly every possible
market segment (from Ritz-Carlton luxury to extended-stay and
limited service), buying another chain with a well-known brand
hardly seems necessary. However, with the Renaissance purchase,
Marriott has already proven that it is willing to operate more than
one brand in a segment. And, says Conner, "The 'one here, one
there' conversions would not really represent the kind of pace that
one is usually talking about when talking about consolidation."PRIVACY,
Private ownership has its
benefits, many hoteliers contend. "I'm able to focus on issues
related to service as opposed to worrying about stock price," says
Brian Stage, president of Radisson Hospitality Worldwide, part of
the privately owned Carlson Companies. "We have the same impetus to
grow, but we have the opportunity to be more patient and take a
longer-term view of our future. We don't have a quarterly report to
Radisson continues to add hotels through acquisitions in
key markets, franchising, licensing and strategic alliances. "There
are a lot of companies out there that are tapping significant
investment pools to acquire hotel real estate and have no interest
in being a brand, but still need an affiliation with a strong
brand," says Stage. "That's an important source of new business for
At the 43-property Omni Hotels chain, "Everyone and his
brother has been to our doorstep offering huge sums of money if we
would sell," says president Jim Caldwell. But Omni plans to grow
into a global company through franchises, management agreements and
acquisitions. "We are actively in discussions with a number of
other companies that own portfolios of hotels," according to
Caldwell. "We have the financial ability to go out and do extremely
large transactions if we find the right one." Omni is primarily
looking at companies in Mexico, Latin America, Europe and the
Pacific Rim. The company also has several North American
construction and conversion projects in the works.
Caldwell adds a few words of caution for his public
counterparts: "I think a number of our competitors are not focusing
on the guest as much as they will have to when the industry goes
through another one of its cycles." * D.N.
In terms of rapid numbers of deals, Patriot American Hospitality
was at the top of the heap last year. In 1996, most planners had
never even heard of the second-largest hotel REIT, which owns
hotels under many different flags. Then the company switched
strategies, and it now has five proprietary brands.
"What this allows us to do is to be able to provide different
levels of product, much like Marriott has done," says Paul Novak,
executive vice president of acquisitions and development.
The April acquisition of Wyndham Hotels & Resorts was
Patriot's biggest deal in 1997; the REIT's paired operating company
will be renamed Wyndham International. Wyndham turned to Patriot
because it could provide the capital needed to grow to more than
Since the merger was announced (the deal had not closed as of
press time), Wyndham bought the 17-property ClubHouse Hotels chain
and, in one month, Patriot acquired Carnival Hotels & Resorts
(including the Registry and Grand Bay brands), Gencom American
Hospitality (numerous third-party management contracts) and WHG
Resorts & Casinos (three resorts in Puerto Rico). Last month,
Patriot announced a $2.1 billion acquisition of Interstate Hotels,
which owns, manages or leases 222 hotels. The deal, which should
close in the next two months, will give Patriot a grand total of
455 properties. Earlier, Patriot had purchased Carefree Resorts and
Grand Heritage Hotels.
Many of the new acquisitions will be converted to Wyndhams,
historic properties will take on the new hybrid Wyndham Grand
Heritage Hotels and a few luxury resorts may assume the Carefree
name. Patriot also has plans to grow the luxury Grand Bay
PROMUS HOTELS CORPORATION
Having lost Renaissance to Marriott, Doubletree Hotels found a
willing merger partner in the operator and franchisor of the
Embassy Suites, Homewood Suites, Hampton Inn and Hampton Inn &
Suites brands. Doubletree had already been rapidly adding
management contracts, and its 1996 acquisition of Red Lion Hotels
gave it an instant presence on the West Coast. But the new deal
creates a company that, as of last June, has 1,132 hotels, covering
the upscale, upscale suites, extended-stay and mid-price
The two companies are merging into subsidiaries of Memphis-based
Promus Hotel Corporation. Doubletree brings its upscale
full-service Doubletree and Doubletree Guest Suites, and mid-price
Club Hotels by Doubletree to the mix. "Our ability to cross-sell
and cross-market our brands will be a key driver of our future
growth," says Raymond Schultz, president and CEO of Promus. *
If the hotel you
contracted with this week has a new name -- and new policies --
next week, where does that leave your meeting?
At the time of booking, ask yourself: If the property
changes hands, do you want to be able to get out of the contract,
or do you want to make sure the hotel can't get out of
"We suggest that you include a clause that allows you to
cancel your contract if there is a change in the flag, management
or ownership of the hotel," says Jonathan Howe, Esq., of Howe &
Hutton, Ltd., based in Chicago and Washington, D.C.
He points to cases where
a property's high-cachet name was switched to another brand that
wasn't perceived as having the same quality.
However, "if [the planners] want the hotel regardless of
whose name is on it, then they should include a clause that says
that the current owners will assign their duties under the contract
to the new owners," suggests John Foster, an Atlanta-based attorney
specializing in the meetings industry.
In general, where neither clause is added, existing
contracts are assigned to the new owner. * D.N.
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