Management Merger

The massive wave of consolidation, otherwise known as merger mania, that has consumed the hospitality industry for the past few years continued last week when the two biggest independent hotel management companies ended months of speculation and joined forces.

Plano, TX-based Aimbridge Hospitality and Arlington, VA-based Interstate Hotels & Resorts announced a merger that will create a combined portfolio of some 1,400 managed hotels when the deal is finalized, which is expected to occur by the end of the year. For all intents and purposes, from the perspective of the lodging industry this is effectively the Marriott/Starwood merger of the management segment. Michael Deitemeyer, president/CEO of Interstate, referred to the deal as a “game changer” and it certainly is.

Making a case for the benefits of the deal for each company is not hard to do. First and foremost is the issue of scale, which is no longer optional for any hotel company with designs on being an impact player. The additional scale provides the ability to keep costs down when it comes to all kinds of purchasing, including food & beverage, and also provides further leverage in terms of employee benefits and insurance, which can be significant with nearly 60,000 employees.

In addition, the companies seem to be a good fit as the deal allows them to leverage each other’s respective strengths. For example, Interstate--which brings some 500 properties to the portfolio--has long had a strong global presence going back to its days of being co-owned by Jin Jiang International. Being a truly global player will be critical going forward as the industry continues to take on a more international feel. Meanwhile, Aimbridge--which has more than 800 properties--maintains a strong presence in resort markets, as well as the Caribbean, and has a sizable mix of full-service properties.

The combined company--which will take on a new name and identity in the coming months--will be run by Dave Johnson, long-time CEO of Aimbridge. Deitemeyer, meanwhile, will be the global president and oversee global operations.

Johnson touted some of other benefits of the merger in a statement. “Aimbridge is thrilled about the opportunity to join forces with Interstate to enable us to bring even more value to our hotel owners,” he said. “Our combined scale will ensure access to more robust data and the best talent to further differentiate us as leading hospitality managers.”

So now to the bigger question about this deal, is it good for the industry? As a point of comparison, no other independent management company even approaches 200 hotels in its portfolio. How will the myriad of smaller companies that currently exist be able to effectively compete with a company with the size and scale of this new giant?

This can be especially difficult as by all indications we seem to be entering a down cycle of sorts. During such times, there are inherently less properties changing hands resulting in fewer opportunities for management companies. Will this merger ultimately force these companies to further consolidate in order to effectively compete?

But it’s not just the management companies that need to worry about the impact of this deal. Brand companies need to keep close tabs on it as well. Will this move entice even more property owners to move away from traditional brand management whenever possible? After all, most of the large publicly-traded brand companies now own little to no real estate and rely heavily on management fees for their bottom lines. In fact, you can make the argument that this newly merged company will effectively be a brand unto itself.

Clearly, this deal comes with lots of questions in terms of its overall impact on the industry. But based on the past couple years it seems the biggest question we should probably be asking is who’s next?

Perspectives

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