Marriott buys Starwood for $12.2 billion – more behind the headlines

Marriott has ended weeks of speculation and splashed out $12.2 billion to buy rival hotel group Starwood.

The mainstream and business media coverage will no doubt be dominated by the fact the acquisition has created the largest hotel company on the planet.

The pair will have a combined presence in over 100 countries, with 30 brands running more than 5,500 properties worldwide.

Those properties will equate to 1.1 million rooms on a global basis – an increasingly important metric it appears given the new kids on the block in the hospitality sector such as Airbnb are touting their portfolios based on unit volumes in any given location.

Executive chairman of the board at Marriott International, Bill Marriott, says:

“Now, it may feel strange to go from competitors to team mates. We have competed with Starwood for decades. But, we have also admired them.

Starwood introduced W and changed the hotel landscape by helping define lifestyle brands. They introduced the Heavenly Bed — we all wanted one of those. And, they have loyal guests just like we do.

“At day’s end, we have the same goals to treat each other and our customers with care and respect. I expect becoming one team will come pretty naturally.”

This is the type of commentary you would expect from two hospitality companies.

Marriott International CEO Arne Sorenson adds:

“This is an opportunity to create value by combining the distribution and strengths of Marriott and Starwood, enhancing our competitiveness in a quickly evolving marketplace.

“This greater scale should offer a wider choice of brands to consumers, improve economics to owners and franchisees, increase unit growth and enhance long-term value to shareholders.

“Today is the start of an incredible journey for our two companies.

Starwood’s interim CEO ahead of the acquisition’s clearance by mid-2016, Adam Aron, says:

“The combination of our two companies brings together the best in innovation, culture and execution.

“Our guests and customers will benefit from so many more options across 30 hotel brands, while our hotel owners and franchisees will derive value from our combined global platform and efficiencies.

But the fact that the deal has been struck between two enormous existing companies, both with a global presence, rather than a predicted deal for Starwood from newbies on the market such as the emerging Chinese players, shows how crucial it appears to be that consolidation happens in the hospitality sector as the landscape reaches a critical moment.

There will no doubt be plenty of reasons for the deal, but one important theme will be the how the distribution and marketing of hotels are going through a seismic shift in recent years.

Led by the online travel agency duopolies in the US, Priceline Group and Expedia Inc, hotels are arguably finding their strategies to showcase hotels through intermediaries are vastly different than just two years ago.

With negotiating power strengthened amongst OTAs, there is no reason, some argue, as to why hotel brands cannot do the same.

Such distribution and marketing wrangles extend to how large hotel groups now deal with those in the metasearch and advertising sector, such as TripAdvisor and Google advertising.

A Euromonitor chart shows the volume of money now flowing through the intermediaries and chains.

marriott chart

The first name of the chart, Airbnb, is also part of the problem for hotels… or opportunity, depending on who you listen to.

There is no question that “alternative accommodation” options are making their presence felt, a cultural shift on traveller behaviour which shows no sign of slowing down as yet.

The official statement notes “Starwood’s first-mover advantage in the lifestyle category along with Marriott’s broad range of brands in this segment, positions the combined company as a leader in the lifestyle space”.

Lifestyle is an umbrella term for smaller, boutique, design-led properties, a million miles away from the uniform mid-market business hotels which makes up a big slice of the Marriott portfolio.

Highlighting the importance of lifestyle hotels in the future is an indirect nod to the impact that Airbnb is having on the hospitality sector. French chain AccorHotels is more direct.

Pierrick le Masne, its SVP of strategic planning, told the IATA WPS conference last month: “Airbnb is more than a platform for private accommodations. It’s setting a new traveller expectation; they want something more local, more authentic…”

Meeting that challenge may not be in the public remarks around an acquisition of this size, but behind the scenes the beancounters and marketers will know that where there is consolidation there is the chance for cost-cutting and also repositioning of brands to compete with the Airbnbs of the world.

From an organisation perspective, there are also plenty of other elements to consider.

Both companies are known to have become very data-driven in recent years, with both also suffering from a fair degree of paranoia about how they tackle their distribution and marketing channels.

In that respect the two companies are a good match.

Marriott, in particular, is a fierce defender of its strategy to have central control of its distribution relationships – a process which has seen it spend high on consulting and research to ensure he can tweak and optimise how its products are pushed into various consumer channels.

R J Friedlander, CEO of hotel online reputation management company ReviewPro, says:

“It is a great move for Marriott, both to gain scale and to add brands that are well positioned to attract key customer segments that value a more innovative product and a certain hotel experience.”

Tweets from Marriott:

A bit more low-key from Starwood:

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Kevin May

About the Writer :: Kevin May

Kevin May was a co-founder and member of the editorial team from September 2009 to June 2017.

 

Comments

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  1. Valentin Dombrovsky

    I’ve started thinking about how “big” Airbnb is in the eyes of the industry and how “small” it is in fact in the eyes of the traveller.
    Only 1 % of US travellers abroad have used Airbnb for their trips. Airbnb has 10 times less bookable accommodations than Booking.com and makes much less revenue as well. I personally like it as an example for startups to follow and as a traveller who likes to stay in Airbnb accommodations, but can the sharing economy trend in travel as a whole be overvalued?

     
  2. RobertKCole

    Smart move by Marriott. Price was nearly $5.00 per share lower than Starwood’s market close on Friday.

    The game is all about room density now…

    And nobody negotiates better with OTAs than Marriott.

     
 
 

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