Asia M&A deals set to pick up, focus on second-tier markets

Manila, Philippines

A couple of large hotel M&A deals in the pipeline suggest that 2016 could be another major year for Asia-focused transactions despite a shortage of announcements to date. 

Last year was a big one for hotel M&A activity in the region in terms of both local transactions and Asian capital driving deals in other markets. And even though there have not been any massive announcements yet, current levels of marketing and discussions suggest that 2016 is also going to be a major year for hotel deals in Asia. China’s Anbang Insurance Group did make a bid $14 billion for Starwood Hotels & Resorts Worldwide, but walked away in the end, clearing the path for Marriott International Inc.

Robert McIntosh, executive director of CBRE Hotels Asia Pacific in Singapore, told HOTEL MANAGEMENT that there a number of significant deals are in the works this year.

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“I can’t name names, but there are a couple of big ones on the market right now,” McIntosh said. “There’s a bit more activity now then there had been recently.”

It’s not quite deal time yet, McIntosh said, but some of the offerings are substantial.

“There are properties that are being actively marketed, I’m not talking about portfolios, but groups that are being actively marketed,” he said.

Where The Action Is

Activity and interest in the Indonesian and the Philippines is growing, he said, partly due to rapid expansion by some groups. Among the interested parties are players in those markets who are looking to merge their operations, as well as private Asian capital mixing it up with outside investors.

“There is global capital, there are two or three groups that have billion-dollar funds, the Morgan Stanleys, the Blackstones, people like that are looking around, but they’re not necessarily looking at M&A, they’re just looking to buy,” McIntosh said. “Smaller funds are more interested in consolidation moves.”

Anbang’s failed bid for Starwood received a lot of attention, but did not take away from the fact that Chinese capital is still flowing around the region. Big announcements are likely later in the year.

Price Range

In the meantime, there has been a lot of mid- and small-sized activity, such as the $29 million purchase of the Balgownie Estate luxury resort, spa and winery in Australia’s Yarra Valley by Interactive China Cultural Technology Investments last week. This most recent deal is but one of many Chinese investments in Australian hospitality announced this year.

“It does seem that there’s still a capacity for money coming out from China across the region,” McIntosh said.

Looking toward the rest of this year, some of last year’s target markets are likely to take a back seat to other investment destinations.

“In Singapore the market’s been softening, and the same is true for Hong Kong,” McIntosh said. “But there’s no pressure on vendors, which creates a mismatch in pricing between vendors and purchasers. There’s a lot of capital around, so where does it go? It gets pushed to other markets.”

In addition to Indonesia and the Philippines, both of which have growing middle classes and are expecting around 6-7 percent GDP growth this year, McIntosh said that Vietnam was another up-and-coming investment destination that should gain momentum as investors become increasingly comfortable with this relatively new market. Thailand is another destination likely to grow in appeal this year.

“Where are people getting frustrated? It’s becoming difficult to buy in Singapore, Hong Kong—places like that,” he said. “So there are people looking more into Thailand, Vietnam, those kinds of locations, because they can see quite reasonable opportunities in those markets. I think there’s going to be a lot of transactions in what’s traditionally been the second-tier market.”

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