Hospitality and Leisure

Hospitality and Leisure M&A Outlook 2010

With the economy in turmoil, the hospitality & leisure (H&L) industry really took a hit. Fewer people were traveling throughout the year and profitability was at a record-breaking low.

As tourism began to improve toward the end of 2009, many major markets saw increased occupancy and revenue available per room (revPAR). Most important, deep price cuts were less of a strategy to fill rooms than had been seen earlier. Patrons focused more on amenities and value-for-destination, factors that left domestic travel starting to revive in quite a few markets.

As 2010 progresses, look for larger chain hotels and the like to purchase smaller independent hotels in prime locations and/or destinations. This strategy allows the larger established company to make its mark on an established location and likely to purchase it at rock-bottom prices. Many smaller hotels, motels, bed-and-breakfast inns et al. simply did not have enough capital to weather the storm. The larger hotels, by applying an established brand to “quaint” accommodations, can achieve a “boutique” atmosphere that travelers by and large are willing to pay more for.

2010 likely will also see enterprising independent owners take advantage of fire sale prices to expand operations or better location offerings, and private-equity groups will see the potential in purchasing small chains or geographic groupings.

Most M&A activity in the H&L industry will center on domestic travel. Look for multinational or international companies to invest more in domestic hotels than otherwise and for domestic travel prices to go down overall.

SOURCE: Deloitte