Budget travel might be the ideal way to ride out the pandemic. This seems to be thinking of Accor Chief Executive Sebastien Bazin who is eyeing a $17 billion tie-up with his peer reviewed and Holiday Inn owner InterContinental Hotels, according to French newspaper Le Figaro.
It's easy to see why Accor's Bazin may be appearing around. The pandemic has had a dire effect on the 7 billion owner of luxury brands like the Savoy in London. It is heavily exposed to both international tourism and executive travel, both of which have endured from quarantines. Accor's earnings per room, a key metric in the hotel industry, was down 88% year-on-year in the second quarter and it's burning 80 million euros of cash a month. The $10 billion InterContinental, meanwhile, has a larger presence in the more resilient U.S. and budget markets.
A marriage would have benefits for both. The combined group would be one of the largest hotel operators in the world, giving customers a wider selection of areas to stay. Marriott International's $13 billion takeover of Starwood Hotels and Resorts in 2016 targeted cost synergies equal to about 20 percent of combined general and administrative expenses. A similar figure for Accor and InterContinental would suggest savings of $293 million. Those might have a current value of more than $2 billion, after taxed at 26%, the average of those two companies' prices, and capitalised on a multiple of 10.
Governance could be catchy. Both groups have a similar market capitalisation, and a cash deal could be hard to finance, given banks' reluctance to contribute to the contested sector. That leaves a merger of equals because the very likely situation. But Bazin or IHG's Keith Barr, equally seasoned dealmakers, would need to give up the very best job. Accor shareholders like Chinese resort operator Shanghai Jin Jiang International Hotels and Qatar Investment Authority might not want to see their holdings diluted.
Hotel mergers aren't easy. Integration can be complicated, and effective brands may lose their sparkle in bigger organisations. Nevertheless the fallout in the pandemic may last decades, and the industry remains highly fragmented, with many smaller chains fighting for survival. That should mean a lot of travelling for M&A bankers.
It's easy to see why Accor's Bazin may be appearing around. The pandemic has had a dire effect on the 7 billion owner of luxury brands like the Savoy in London. It is heavily exposed to both international tourism and executive travel, both of which have endured from quarantines. Accor's earnings per room, a key metric in the hotel industry, was down 88% year-on-year in the second quarter and it's burning 80 million euros of cash a month. The $10 billion InterContinental, meanwhile, has a larger presence in the more resilient U.S. and budget markets.
A marriage would have benefits for both. The combined group would be one of the largest hotel operators in the world, giving customers a wider selection of areas to stay. Marriott International's $13 billion takeover of Starwood Hotels and Resorts in 2016 targeted cost synergies equal to about 20 percent of combined general and administrative expenses. A similar figure for Accor and InterContinental would suggest savings of $293 million. Those might have a current value of more than $2 billion, after taxed at 26%, the average of those two companies' prices, and capitalised on a multiple of 10.
Governance could be catchy. Both groups have a similar market capitalisation, and a cash deal could be hard to finance, given banks' reluctance to contribute to the contested sector. That leaves a merger of equals because the very likely situation. But Bazin or IHG's Keith Barr, equally seasoned dealmakers, would need to give up the very best job. Accor shareholders like Chinese resort operator Shanghai Jin Jiang International Hotels and Qatar Investment Authority might not want to see their holdings diluted.
Hotel mergers aren't easy. Integration can be complicated, and effective brands may lose their sparkle in bigger organisations. Nevertheless the fallout in the pandemic may last decades, and the industry remains highly fragmented, with many smaller chains fighting for survival. That should mean a lot of travelling for M&A bankers.