The Americans are coming

27 October 2005
The Americans are coming

Question: What do Starwood Capital, Colony Capital and Hilton Hotels Corporation have in common?

Award yourself one point if you came up with: "They're all US investors with interests in the hotel business." A bonus point, however, goes to anyone who said: "US investors currently buying into the European hotel business."

European hotels, it seems, are the "in thang" in North American investment circles. But why now?

First the evidence. Starwood has been negotiating the acquisition of the Le Meridien portfolio of more than 130 hotels and resorts for some time. This summer, it also carved out a majority stake in Taittinger's Concorde Group. French-based Concorde has 14 luxury hotels, as well as the 805 budget hotels in its Envergure business.

At the same time, Colony Capital has been manoeuvring for greater control of the French Accor group. At €1b (£675m), this is said to be Colony's largest investment in Europe to date.

Meanwhile, in the UK, Whitbread has sold its rights to the Marriott brand back to Marriott International in the USA. And most recently, the Hilton Group is reportedly preparing to sell its hotel business to US-based Hilton Hotels Corporation (HHC).

Commentators speculate that the currency markets have prompted much of the USA's sudden interest in Europe. Even though the dollar-euro exchange rate is not as favourable as it once was, investors may feel a new stability has been reached, and deals that had been put on hold are being reignited.

Overall confidence in the sector is also a factor. One industry expert says: "There was a big decline in the hotel business after 9/11, both in the USA and internationally. Now we're starting to see a recovery."

Part of the attraction of Europe is the opportunity to acquire smaller chains, reflag and upgrade them. "Europe is still behind the USA, particularly in branding terms," says hotel consultant Martin Armitstead.

Interestingly, US ownership does not guarantee the "Americanisation" of the brands. Starwood Hotels & Resorts' senior vice-president of operations, Michael Wale, says: "While brands such as Sheraton and Luxury Collection are seen as being US brands operated in international outposts, Le Meridien is a global brand and is seen as having a European identity and heritage."

Paradoxically, this could mean that the US-based group will be selling a European proposition back to its domestic market.

Analysts also reckon Europe is lagging behind the USA when it comes to the trend for splitting property from brand ownership and management. A spokeswoman for Marriott Hotels says: "Marriott made its own corporate split back in 1992. US accounting actually depreciates property over time." The fact that many brands such as the Hilton Group in the UK have begun the process of property divestment may make them more attractive targets to investors.

For HHC, the mooted deal with Hilton Group is partly about buying into a high-growth business that is successful in its own right. But it can also be seen as a platform for further deals or partnerships, only some of which are likely to focus on Western Europe.

Property can move in the opposite direction across the Atlantic, too. As hotel industry consultant Melvin Gold points out, Ireland's Quinlan Private last year acquired what was then the Savoy Group from the Blackstone Group and Colony Capital.

But Gold remains cautious of overgeneralisations regarding US capital targeting Europe in particular. "It's a very busy sector at the moment, and there are a few billion pounds' worth of transactions still kicking around in the market," he says. "It's natural that investors from the world's largest economy will pick a few things up."

As well as showing significant interest in Accor, Colony Capital this summer also turned its attention to the hotel business of Singapore-based Raffles Holdings. The same fund is also targeting Japan - and by no means only hotels.

The USA is leading the charge towards larger, more strongly branded global hotel chains. Brands with regional resonance outside North America, such as Le Meridien, are likely to be developed as a part of this broader global push.

The trend in Europe is being fuelled by shareholder pressure on European brands to maximise returns, which, in turn, means property is being ditched in favour of management-only and franchising. It therefore makes sense that more of these consolidated and expansive brands may end up in US hands.

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