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Appetite is returning for hotel M&A deals

Tuesday 9th March 2010

By Mike Jones

Last year saw the lowest number of M&A deals in the hotel sector globally for a decade, but with some confidence returning to the wider economy, appetite is growing.

That was the verdict of Richard Hathaway, Head of Travel, Leisure and Tourism at KPMG, speaking at the start of the International Hotel Investment Forum (IHIF) 2010 in Berlin.

"Hoteliers and investors alike are hunting for bargains, but with financing still posing a challenge, deal approaches will need to be innovative," he said.

"The profile of hotel owners and investors has changed dramatically since previous recessions. PE activity hasn't recovered and future transactions will have to be funded differently, as lenders return to a traditional emphasis on equity.

"Funding is available for the right deals, but with the banks happy to sit on hotel assets in the hope of a property rebound, prospective investors will need to develop creative deals that work for them, the banks and other lenders, if they are to entice them in to undertaking deals now."

Research has shown that the world's leading hotel groups are expected to need around US $ 70billion of refinancing over the next five years, with approximately US $ 12billion to be renegotiated during 2010 alone.

Hathaway said: "For potential deals to become real ones there needs to be a reason for current holders of assets to sell at values that might not meet their current objectives.

"Whether this might be the result of improving sentiment and market performance increasing the prices buyers are prepared to consider, or a double-dip tipping more companies over the edge and making banks nervous about the number of hotel sector exposures on their balance sheets, remains to be seen.

"Either way, it is likely to be closer to the end of this year before the expectation gap on values closes enough for a meaningful level of M&A to return."

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