After a recent lull in speculations about possible mergers and acquisitions suitors for Starwood Hotels & Resorts Worldwide, the news that Starwood is in advanced talks with Hyatt Hotels may finally bring an end to the months of speculation surrounding the company’s future. A merger would put the combined company in a far better position to compete with the current top three global hotel companies: Marriott; Hilton; and InterContinental Hotels Group (IHG). However, both Starwood and Hyatt are heavily focused on the luxury segment, and predominantly operate in North America, so a merger should not be seen as a strategic partnership to increase geographical coverage or an improved segmentation spread. Instead, it would help the combined company to enhance efforts to tap into the growing luxury market, with demand predominantly rising amongst consumers from developing countries in Latin America, Asia Pacific and the Middle East.
Acquisition would form new top three hotel chain
Since the announcement by Starwood’s chairman Adam Aron in April earlier this year that the board was looking into strategic and financial alternatives to improve shareholder value, Euromonitor International has discussed possible suitors put forward by industry insiders and the press. First Wyndham Worldwide, and later IHG, were suggested as having an interest in acquiring or merging with Starwood.
The latest news that Hyatt Hotels is in advanced discussions with Starwood, which was revealed by CNBC, is surprising to say the least, as Starwood had more than double the value sales of Hyatt in 2014. If Hyatt was to acquire Starwood, the combined company would have value sales of around US$22.1 billion, putting it at par with IHG, and in reach of the current top three players, allowing it to better compete.
Global Value Sales of Top Hotel Companies (including Hyatt-Starwood): 2014
| Ranking | Global brand owner | Value sales (US$ billion) |
| 1 | Marriott International Inc | 27.5 |
| 2 | Hilton Worldwide | 26.6 |
| 3 | Hyatt-Starwood | 22.1 |
| 4 | InterContinental Hotels Group Plc | 22 |
| - | Starwood Hotels & Resorts Worldwide Inc | 15.2 |
| 5 | Accor Group | 12.9 |
| 6 | Wyndham Worldwide Corp | 9.1 |
| 7 | Choice Hotels International Inc | 9 |
| 8 | Carlson Cos Inc | 7.9 |
| 9 | Best Western International Inc | 7.2 |
| - | Hyatt Hotels Corp | 6.9 |
Source: Euromonitor International
Minimal benefit to geographical coverage
What makes the news even more interesting is the fact that it came one day after the news that three competing Chinese companies had shown interest in acquiring Starwood. Two companies, China Investment Corporation (CIC) and HNA Group, are private equity investors, while the third is the fourth largest hotel provider in China: Shanghai JinJiang Holdings, owner of Jin Jiang Hotels.
Euromonitor International has noted before that most of the competitors put forward as suitors for Starwood have similar geographical coverage. Like Starwood, Wyndham, IHG and Hyatt all have their main operations in North America. A merger with a Chinese player would therefore be more sensible if extending its geographical coverage was Starwood’s intention.
Starwood and Hyatt’s Portfolios Based on Geographical Spread: 2014
Source: Euromonitor International
Note: Portfolios are based on value sales; full circle is 100%
Focus on the luxury segment
While Wyndham and IHG might have offered some diversification in terms of segmentation, this is less the case with Hyatt. Both Starwood and Hyatt are mainly present in the luxury segment, with a limited portfolio in the mid-market and budget segments. This acquisition should therefore be seen as an effort to improve both companies’ opportunities to tap into the luxury segment, which is growing strong in most markets. Since 2009, a major year of hotel sales decline in most regions, the luxury segment has rebounded strongly, with new luxury outlets outperforming consistently mid-market hotels across the world. While Asia Pacific and the Middle East and Africa are showing strong growth in budget hotels, the luxury segment is also performing strongly in these regions as their economies are developing.
Outlet Growth by Segment and Region: 2009-2014
Source: Euromonitor International
If the acquisition goes ahead, the combined company can be expected to streamline its marketing operations, with Hyatt, for example, benefiting from Starwood’s frontrunner position with regards to implementing new technologies and innovation in its hotels, while Starwood’s Sheraton brand is due a revamp, which will be benefited by an increased portfolio, potentially higher budget and added intellectual and creative input.