International impact seen in Hamilton, Pyramid merger

The St. Pancras Renaissance Hotel London is managed by Hamilton Hotel Partners.

The merger of Hamilton Hotel Partners and Pyramid Hotel Group has created a company managing a total of 141 hotels with 32,000 rooms in eight countries.

Pyramid's target is to build a platform in Europe of similar scale to the U.S., where they have some 100 hotels under management, within three to four years.

The deal came only months after the merger of Aimbridge Hospitality and Interstate Hotels & Resorts, which formed a group managing more than 1,400 branded hotels across 20 countries.

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Frank Croston, partner and co-founder, Hamilton Hotel Partners, told us: ”The logic from Pyramid's perspective was that they were struggling to organically grow a platform in Europe quickly enough. They've been through a three-year process of trying to find the right  partner and they felt that we were a good fit.

"This turbo-charges our organic growth potential. They have a bigger balance sheet than us and more capital resources than we do.

"Whilst we are very happy to offer 'straight' management contracts we also follow a similar structure to that when, for example, Westmont [does] deals: they co-invest alongside the majority investor, putting money on the table to create real alignment with the partner. It is no longer them and us with the manager vs the owner and it means that you jointly look closely at the ROI and where you are in the investment cycle when you consider investments.

"TPOs [third-party operators] that aren't willing or able to co-invest aren't as favoured. Not everyone looks for that and may look for alignment in other ways. but the PE groups and family offices increasingly have a preference for co-investment. It doesn't have to be huge; the standard number for the market is 2.5% to 5% of equity.”

The merged Hamilton and Pyramid will have £5.3bn of assets under management. Hamilton covers Europe, Middle East and Africa, operating or asset managing over 50 hotels across Europe. Pyramid is currently the third-largest independent hotel management company in the U.S., operating 90 hotels and resorts both independent and companies including Marriott, Hyatt, Hilton and IHG.

Warren Fields, co-founder and CEO, Pyramid, will be the CEO of the combined group, with Croston and Chris Evans continuing in their roles leading the Hamilton business.

Fields said: “We have been seeking a European partner for what seems like a long time.  We have found the right partners in Hamilton and we believe we can create significant synergies and growth opportunities on both sides of the Atlantic.

“This exciting merger will result in an enlarged management platform building on Pyramid’s institutional quality management and operational systems and Hamilton’s exceptional reputation and experience in the UK and throughout continental Europe.  Our combined abilities will position us as a leading provider of hotel management and asset management services providing unrivaled service to both private equity and institutional investors alike.”

At Interstate/Aimbridge, rumours suggested a figure of around $1bn for the deal. Private equity group Advent International acquired a majority ownership stake in Aimbridge prior to the transaction and assumed majority ownership of the combined entity.

“Through this merger and under Advent’s ownership, Aimbridge and Interstate can build a platform that differentiates the combined company through optimizing owner value, top-notch talent and global expansion,” said Glenn Murphy, chairman, Aimbridge.

Michael Deitemeyer, president and CEO of Interstate, became global president, overseeing operations globally and corporate disciplines. He said: “Interstate’s energy in Europe is indicative of the momentum coursing through the company. Aggressive efforts to expand our reach with important European hotels demonstrate our commitment to providing the best hospitality services in the world.”

Insight: Rumours of this deal began to swirl at last year’s IHIF and there will now be a brief pause while this hack goes and claims a bottle of white which has been 11 months in the maturing. But it didn’t take a massive leap to see this deal coming, although it did take a huge amount of restraint not to make some ghastly puns about pharaohs.

Away from the daily trials of hacking, this deal creates another large third-party management company, fed by that growing truth that hotels are a mainstream investment which mainstream investors don’t want to get their hands dirty with. Or, in the case of a number of institutions, aren’t allowed to get their hands dirty with.

For those who could get close to the action, many mainstream investors have looked back over the history of hotels and found that not all is to their liking. The relationship between owners and brands has not always been an easy one, with power tending to the brand. That has shifted as the brands have pulled back from operations and sought to fill their pipelines quickly with franchises, allowing the third parties to slip into the middle, offering nimble solutions with an eye on the bottom line. Now that they themselves are gaining volume, investors will be watching to ensure that they retain this nimbleness and that investors don’t get lost in the crowd, the complaint they had with the brands.

Where will the third parties go next? Deeper into investment, following the example outlined by Croston but also last year’s deal which saw Freo Group, the European real estate investment and asset management business, acquire a 25% stake management group Michels & Taylor, allowing the latter to participate in deals as an investor.

Now, about that bottle of wine, Frank.

 

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