Starwood Founder Says Chain Has Fallen Behind, Suggests Merger With Larger Chain
Jennifer Billock June 02, 2015
The founder and former CEO of Starwood Hotels thinks it’s in the company’s best interests to merge with a larger hotel chain.
According to Barry Sternlicht, founder of Starwood Hotels & Resorts Worldwide, the hotel chain he formed has fallen behind others in the industry. Despite its bleak decline over the decades, though, the current chairman and CEO of Starwood Capital Group says he expects the chain to make a full recovery.
Starwood launched a strategic review into the company following the abrupt departure of CEO Frits van Paasschen earlier this year, hiring a banker to “explore a full range of strategic and financial alternatives to increase shareholder value.”
Although Sternlicht acknowledged that back-end technology at Starwood is doing well thanks to the former CEO’s attention to the system, he said it might be wise for the hotel chain to merge with another, larger business to increase its select service visibility, which is currently a major trend in the hotel industry. Hilton was cited as a great example of how consolidation helps boost growth in the hotel industry, with the company’s core business growing at about 25 percent while some of its its spinoff brands — Hilton Garden Inn and Doubletree — are seeing 200 percent growth rates.
Sternlicht shared his comments Monday at the 37th Annual NYU International Hospitality Industry Investment Conference in New York City. He also noted during the conference that Starwood is seeing more and more competition from other hotels, AirBNB and consolidated chains across the industry. The Internet is also having a huge impact on the industry and changing in the way everyone does business, Sternlicht said, joking at the conference that: “You can’t lie to your customers as easy as you could 20 years ago.”
[Photo: Starwood]
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thereis no such thing as a merger. there are "Acquisitions" and there are "Collisions". If everyone is not clear that it's an acquisition, then it is a collision. true for hotels, for airlines, for technology and for all of business.
IHG would be the best fit: Starwood has nice upscale and boutiqe'ish properties, IHG knows how to do mid-scale and select service! Match made in heaven!
"Merger" is the favourite answer of all investment firms instead of "fix the effin operations". Fixing operations requires understanding them, which is full of detail and thinking. A merger is easy to understand, you can pay yourself a nice bonus and then blame all of the underperformance on PMI. Most of the M&As end up not delivering the expected results, mainly because they only increase business complexity and drive away attention and resources from fixing the underlying business problems. This is also because a PMI is just as complicated as fixing operations, so if you can't do the latter you usually can't do the former. Hotel business does have an economy of scale element, but there is no "minimum scale" for profits, as the fixed costs chain-wise are not that high. The problem of not having a strong select-service chain is pinpointed rightly, but this can be addressed by creating one and rolling it out as aggressively as Hilton - and Hilton did it without merging with anybody. If Starwood has problems acquiring high-yield franchises, it means their value offering is not as good as competition's. If it is not good because Starwood hotels do not seem as profitable for hotel investors/operators, it is possibly because guests do not rate them as highly as they do other chains. Which boils down to improving the guest experience, not merging with anybody. Other thing might be that other chains are desperately discounting their franchises which might require for Starwood to hang on to their most profitable franchises, offer a better overall value proposition (high fees for high yields) and wait for the others to run out of breath trying to collect low-yield properties. Starwood's Aloft seems like a brilliant, attractive concept, but the rollout is almost zilch outside of North America. Does rolling it out further require a merger? I do not think so - more like getting down to some actual work.
IHG like before should be in the talks again......
He wants to merge with a larger chain, but then says that the part they're missing is midscale hotels. What larger chain is going to give them more midscale hotels without bringing in lots of higher-end hotels? If they want midscale hotels quick, they should do the merging with a midscale-only chain such as La Quinta. (And then make La Quinta more consistent while also making Sheraton more consistent!!!) And if they want trophy, why they don't merge with small-footprint Hyatt, instead of looking for a bigger company (that has no interest in merging with Starwood)?