Hotel M&A on the rise as business travel recovers 

ByTravelling For Business

April 16, 2024
The global hotel and business travel sectors have both experienced strong M&A activity already this year, with the UK no exception to the trend.The global hotel and business travel sectors have both experienced strong M&A activity already this year, with the UK no exception to the trend.

The global hotel and business travel sectors have both experienced strong M&A activity already this year, with the UK no exception to the trend.

A growth in deal-making is often a sign in this industry that there is an expectation amongst C-Suite executives that a surge in business travel and associated expenditure is imminent.

A concerted recovery from the impact of the COVID-19 pandemic and a return to profitability will prompt many owners to put their travel businesses on the market, after a period in which this course of action has just not been possible. Others will find that an increase in sales is not enough on its own to reverse the recent drain on cash flow, and will choose to sell their business (or a part of it)  for instant liquidity.  Whatever the reasons, it is very likely that we will see a big increase in UK hotels for sale by the end of the year.

Hotel M&A had a difficult year during 2023, compounded by a post-pandemic recovery that stalled amid high inflation and interest rates. This pushed many hotels to increase their prices, at a time when companies around the world were seeking to limit their business travel expenditure in the face of economic and geopolitical turmoil.

In late 2023, GlobalData reported that, despite declining M&A activity, appetite for hotel acquisitions had remained resilient, fuelling hopes that dealmaking could recover if the travel and tourism sector began to see a more stable environment.

At the time, GlobalData’s Head of Research and Analysis for Travel & Tourism Nicholas Wyatt said that “hotel operators have taken a more cautious approach to M&A activity while they wait to see how the ongoing recovery progresses and assess to what extent business travel, traditionally a key driver of the industry’s performance, has fundamentally changed.”

At the outset of 2024, the signs seem to be positive that the year could bring a significant recovery in business travel habits, with the Global Business Travel Association (GBTA) saying in its recent Business Travel Outlook Poll that “the global business travel industry “has put the pandemic behind it and is riding a wave of momentum at the start of 2024”.

The poll found that 67 per cent of business travel buyers anticipated that they would increase their business travel spending in 2024 compared to 2023, while 59 per cent expect the number of business trips they take to increase this year.

Confidence is also increasing as COVID-19 becomes less of an issue for business travellers, with just one per cent of respondents citing pandemic-related issues as a concern, while 57 per cent said that it was no longer relevant to compare industry performance against pre-pandemic levels in 2019 during 2024.

Stating that business travel had “moved beyond the pandemic”, GBTA CEO Suzanne Neufang said: “As companies and travellers continue to embrace the vital role of in-person connection for business, there are strong indicators for continued growth in travel volume and spending in 2024.”

Illustrating the growing confidence in the global travel sector (both for business and leisure travel), late 2023 and early 2024 have shown promising signs of a recovery in hotel dealmaking. Despite slow activity last year, the beginning of 2024 has seen several high-profile deals, with forecasts that dealmaking could improve further through the rest of the year.

In January 2024, UK budget hotel chain Travelodge acquired 66 branded hotels on a freehold and long leasehold basis from LXi REIT, the chain’s largest landlord, in a deal valued at £210 million and supported by the company’s private equity owners: Golden Tree Asset Management, Avenue Capital and Goldman Sachs.

Travelodge Chief Executive Jo Boydell said: The acquisition of 66 Travelodge hotels from LXi REIT, with support from our owner GoldenTree Asset Management, will mark a positive step for Travelodge as we seek to optimise our hotel portfolio and diversify our freehold/leasehold split to enhance value. The new structure will provide us with a platform to explore further freehold acquisitions.”

Later that month, Starwood Capital Group acquired a portfolio of 10 Radisson Blu Edwardian hotels in London from Edwardian Hotels, while February saw hotel operator MCR acquire London’s iconic BT Tower with plans to turn it into a hotel.

However, it’s not just this higher end of the market that is seeing M&A activity gathering pace, with Nick Pattie, Managing Director of business consultancy Whitebridge Hospitality, saying that “[s]maller, independent hotels are coming to the market with good prices” in a further sign that dealmaking could be set to increase during 2024.

Of course, this is not entirely a result of the sector beginning to recover fully from the impact of COVID-19. It is also a simple fact that many owners of smaller hotels are faced with rapidly escalating costs that could lead them to seek a sale in order to ensure the future of their business, while other venues will come to market as a result of their operators falling into administration.

Despite the ongoing distress that’s affecting the sector, however, the increase in large solvent transactions at the outset of 2024 indicates a growing degree of confidence in the hotel industry among buyers, as well as a recognition among owners that they may be able to begin attracting higher valuations.

Should the widely-forecast recovery in business travel take place this year, then it is likely that high-value hotel M&A will increase yet further, as the sector regains one of its most important customer segments. If this upturn does happen, then hotels could be among the most valuable UK businesses for sale during 2024.