China's Huazhu drops €700M for Germany's Deutsche Hospitality

Huazhu has the rights as master franchisee for Mercure hotels in the pan-China region, including the Mercure Xiamen Exhibition Centre. Photo credit: Accor

Shanghai-based hotel operator and franchisor Huazhu Group is expanding its reach into Europe through a multimillion-euro deal. The company has entered into a share purchase agreement to acquire all shares in Frankfurt-based Deutsche Hospitality, whose portfolio includes the Steigenberger Hotels & Resorts brand, for a base cash consideration of about €700 million. 

As noted by Reuters, the price values Deutsche Hospitality at 17-18 times its 2019 expected earnings before interest, tax, depreciation and amortization, or at less than 10 times expected 2022 core earnings. 

The deal is being handled through Huazhu’s wholly owned subsidiary China Lodging Holding Singapore and is subject to net working capital and other post-closing adjustments as provided in the agreement. The acquisition is subject to regulatory approvals and certain other closing conditions, and is expected to close early next year.

“Huazhu has enormous respect and admiration particularly for the prestigious Steigenberger brand,” Qi Ji, Huazhu Group founder/executive chairman, said in a statement. “Huazhu is committed to fully respecting and embracing the heritage of the company, and working closely with the company’s associates, owners and business partners in helping to write the next chapter.” The acquisition is an “important milestone” in the Shangai firm’s global growth strategy, Ji continued, calling Deutsche Hospitality “a perfect strategic fit” for the firm’s expansion plans. “We expect competitive advantages for both companies. The brands of Deutsche Hospitality will enhance the offering of Huazhu and its operating capabilities in the high-end European hotel market.”

Two Companies

Deutsche Hospitality operates 118 hotels across five brands (Steigenberger Hotels & Resorts, Maxx by Steigenberger, Jaz in the City, IntercityHotel and Zleep Hotel) and has a further 36 hotels under development in 19 countries across Europe, the Middle East and Africa. Earlier this year, approaching its 90th anniversary, the company announced a plan to reach 250 hotels worldwide by 2024. 

In a statement, the executive board of Deutsche Hospitality said the acquisition by Huazhu would “enhance Deutsche Hospitality’s ability to achieve this target by strengthening its competitive position in Europe, the Middle East and the African market. The shareholding of the Joint Venture SME Ltd. (Steigenberger Middle East) shall remain unchanged and will continue to operate and expand the Deutsche Hospitality brands with its current partner.”

Huazhu Chief Executive Jenny Zhang told Reuters that four of five Deutsche Hospitality brands will be rolled out in China. Huazhu operates 5,151 hotels with 504,414 rooms across 11 brands as of the end of September. Huazhu also has the rights as master franchisee for Mercure, Ibis and Ibis Styles brands, and co-development rights for Grand Mercure and Novotel brands, in the pan-China region.

The company's business mainly includes leased, manachised and franchised models. Under the lease model, Huazhu directly operates hotels typically located on leased properties. Under the manachise model, Huazhu manages hotels through the on-site hotel managers Huazhu appoints and collects fees from franchisees. Under the franchise model, Huazhu provides training, reservations and support services to the franchised hotels, and collects fees from franchisees but does not appoint on-site hotel managers. As of the end of September, the company operated 83 percent of its hotel rooms under manachise and franchise models

Huazhu also has a limited number of owned or partially owned properties. 

The brands of both companies are expected to continue unchanged, and Zhang told Reuters that no job cuts are planned as part of the deal.