IHIF's Road to Berlin: JLL's Tony Ryan talks consolidation, M&A

Like a shark, hotel companies survive by constant forward momentum. Which is to say by growing their stable of brands via franchise and management development and, over time, adding new brands altogether. By adding more flagged hotels, hotel companies reap the all-important fee-based dollar, an activity that is looked favorably upon by Wall Street.

How, then, do hotel companies go about expanding their operations during this cycle and next? That will be part of a discussion led by Tony Ryan, managing director of global mergers & acquisitions for JLL's hotels & hospitality group, during the International Hotel Investment Forum, March 7-9, at the InterContinental Berlin.

Ryan will host the "Hunter vs. Hunted" panel, a discussion on varying themes from M&A activity and whether brands/operators should use their balance sheet to deliver growth, to operators' expansion strategies throughout the cycle.

Ryan will be joined on stage by Nicolas Broussaud, head of transactions for AccorHotels; Matthieu Evrard, chief development officer for Louvre Hotels Group; Rick Hoffman, EVP of mergers, acquisitions & business development for Marriott International (who in November discussed the Starwood deal with Hotel Management magazine); and Martin Kandrac, EVP of development & real estate and global head of FRHI Hotels & Resorts, itself recently acquired by AccorHotels.

Ahead of IHIF, we spoke with Ryan about the industry, how brands jockey for position and what the expectation is for M&A in 2016.

1
IHIF: 2015 was a banner year for M&A, particularly some big-ticket announcements: Marriott's impending acquisition of Starwood, AccorHotels' FRHI buy and other regional M&A, such as IHG's Kimpton buy. Do you expect more consolidation in 2016 and, if so, on such a big scale as we saw in 2015?

Tony Ryan: In short, yes, I do expect more consolidation this year. The issues that abounded in 2015 are set to continue in 2016, and the stock market expects that asset-light companies will be compelled to grow between 4 percent and 7 percent, and this is difficult to achieve through single-asset transactions.

The market has applauded AccorHotels for their extensive reach across the full range of assets, from budget to luxury. Each management company will grapple with distribution issues by either seeking to control inventory, or may even investigate outsourcing distribution altogether.

2
IHIF: What are your expectations overall for transactions in 2016 on a global scale? As heady as 2015? Will we see more portfolio sales or single-asset?

Ryan: We expect to see a lot of activity in 2016. It is unlikely to scale the unprecedented heights of 2015, but looks set to be very strong year. We expect to see around $70 billion in transactions, which would mark 2016 as the second-highest year of the cycle. This year will be the year of the single asset, as brands look to optimize their existing portfolios. Single-asset volumes will increase by roughly 35 percent year on year.

3
IHIF: Who will be the big buyers in 2016? Will we see continued interest from Chinese buyers, particularly in gateway markets?

Ryan: From an M&A point of view, we expect buyers to be larger operator groups seeking to consolidate. There has also been significant interest from Chinese buyers looking to acquire both real estate and hotel operating companies. A number of companies are seeking to achieve vertical integration on a global scale, where they hold the customer from booking through to travel company, transport, accommodation and shopping.

4
IHIF: What are the prospects in the geographic areas and segments of the business in which you operate?

Ryan: We expect a response to the challenges faced by the industry. This year is likely to see increased consolidation of hotel operating companies, as they strive for scale to help exploit opportunities. There will be a greater emphasis placed on branding, as operators seek to create better definition and brand integrity, offering consistently excellent service and facilities. Brands may take on OTAs by offering guests bespoke special offers that differentiate them from competitors.

5
IHIF: At IHIF, you are moderating a panel on M&A activity and whether brands/operators should use their balance sheet to deliver growth, along with operators’ expansion strategies throughout the cycle. Can you give us a sneak peek on the issues and your thoughts?

Ryan: Two of the key issues we will explore will be growth strategies and targeting. Specifically, we will be looking at how operators will look to achieve the market’s growth expectations, and why Starwood and Fairmont Raffles became targets, rather than acquirers.

6
IHIF: What do you look to get out of attending investment conferences, such as IHIF?

Ryan: For me, IHIF and other investment conferences are a chance to meet up with industry friends and reflect on the past year. They offer a brilliant opportunity to talk to a range of stakeholders, explore industry challenges, and discuss future directions.