There are a few essential truths which we live by in the hotel sector and a key one is that Hilton grows organically. It don’t buy brands.
But change helps us grow and so on. In the case of Hilton, this week has seen the end of years of restraint from lowering itself into the M&A bunfight and focusing itself on fonts. It has done a strategic deal with Small Luxury Hotels of the World to jack up the number of fancy hotels it can offer its loyalty members.
Back in 2018, at the launch of Motto, president & CEO Chris Nassetta said of the organic-only strategy: “We look at almost everything through those lenses …where we can do it better than anything out there, and we can do it exactly the way the customer wants it, and create more organic growth without having to buy growth.”
Because who wants to pay for an expensive M&A team when you can create brands instead? Denizen proved quite costly, of course, but we don’t mention that.
But 2018 was a long time ago and the jury is still out on whether organic is better for you or whether it just means you have to remember to wash it or get a stomach ache. Or worse.
Having lots of brands used to make people feel special, but now everyone has a portfolio of 70. Hotels have to have something else to be judged by and, as the revpar, goppar debate rages on, analysts increasingly feel like they prefer NUG as a KPI.
The simpler the KPI, the more stark the comparison. In the case of Hilton, NUG was 4.9% for 2023. Marriott International has already released its full-year NUG, which came it at 4.7% and the group was quick to comment that it had signed a “record number of organic management and franchise agreements” an average of nearly 2.5 deals a day – representing approximately 164,000 rooms globally.
Don’t let that distract you, Marriott is no stranger to buying stuff – most-recently the mid-market City Express – and was also quick to crowbar in a comment about having an unmatched luxury position which was leaving everyone behind. The organic comment is there to let everyone know that size helps to breed more size. And some size, can, like a Happy Meal, be bought in externally.
Which takes us back to SLH. Nassetta was happy to describe “positive momentum in openings continued throughout the year, with more openings in the fourth quarter than any other quarter in the company’s history. We also achieved record signings for the year, meaningfully ahead of pre-pandemic levels.”
And then the SLH part: “We expect this momentum to continue into 2024 and net unit growth to accelerate to the high end of our guidance range of 5.5% to 6.0%, with the opportunity for further upside of 25 to 50 basis points from our exclusive partnership with Small Luxury Hotels of the World,” with the majority of SLH’s over 500 hotels being added to the portfolio.
The SLH agreement is not a purchase. Nassetta was eager to point that out to analysts. But it’s not organic growth either. Will it prove to be Hilton’s gateway drug to an M&A frenzy? It is rumoured to be buying the 30-strong Graduate Hotels brand and Nassetta said he wasn’t going to comment on ‘market rumours and speculation’ no he wasn’t.
He added that Hilton’s attitude to M&A was the same as it’s always been. “Never say never, but we have a very tough filtration system. In the last 17 years we’ve looked at everything and nothing has passed that filter.
“The environment we’re in now is different. There is more stress in the system than normal and there are more opportunities for small ‘tuck in’ acquisitions’ than we’ve seen in quite a long time.”
But why stop there? Why not Wyndham? Why not Accor? We all know how it goes when breaking a period of abstinence from spending. The slope from Kit Kat to Lotus Elise is a short and slippery one. M&A lawyers, you know who to call.