Global M&A activity may have decreased so far this year but in the hotel sector, acquisitions will ramp up as smaller hotel chains struggle mid-crisis, said analytics firm GlobalData.
The number of announced mergers and acquisitions (M&A) deals globally decreased from 2,349 in February 2020 to 1,984 in March 2020, while deal value decreased from US$151.2bn to US$129.9bn, a global trend replicated in the tourism sector, said Ralph Hollister, Travel & Tourism Analyst at GlobalData. However, M&A activity is likely to increase as smaller providers are left with no choice but to combine with their larger counterparts, he added.
“COVID-19 and its seismic impact on hotel revenues and occupancy rates are almost certain to present investment opportunities for major players as the pandemic progresses and most definitely when it is over.
“Major companies will be in a fierce battle for whatever revenue is available as demand slowly but surely returns. Smaller hotel companies will have no choice but to listen to offers from their larger competitors, as cash reserves deplete at a staggering rate.
There has been some M&A activity both in and from the Middle East: in April, it was confirmed that a private Qatari investor had purchased The Ritz London for an estimated $800 billion, and in February of last year, the Dubai’s Emaar sold five hotel assets that included Address Dubai Mall, Address Boulevard, Address Dubai Marina, Vida Downtown and Manzil Downtown to Abu Dhabi National Hotels for $598m.
“One of the biggest problems that arises in a substantial economic downturn is that major players usually end up benefiting, whilst smaller players with less market share and cash are either consumed or become bankrupt,” commented Hollister.
“In the short-term, travellers will initially stick to what they know best, they will likely become more sensitive towards factors such as hygiene and will want familiarity. Bigger brands will be more likely to convince consumers that they can offer this over independent hotels.”