Starwood Capital's swoop on the franchise business of Golden Tulip will give it a much broader European footprint for its economy and budget lodging business.
But the confused brand structure of Golden Tulip will only add to Starwood Capital's challenges with its existing 800-strong portfolio, leaving it with a perplexing array of brands across what will be a 1,000-strong group.
Golden Tulip adds exposure to a number of key territories for Starwood Capital, taking its portfolio beyond its French strong hold.
It is intended to have a strategic alliance between Louvre and Golden Tulip's franchise business. Being left in the hands of the Dutch receivers, however, are Golden Tulip's leased and managed hotels which might prove a further impediment to clarity in terms of branding.
It remains unclear as to how far Starwood Capital has come in terms of clearing up the messy structure of Louvre. When it was bought along with Concorde Hotels for $3.2bn in 2005, Louvre had a range of different contracts, some franchised hotels, some managed and some that were in between in what is dubbed manchises. The quality of the portfolio reflected this jumbled mix of contract styles.
There is at this stage no apparent plan to stitch the varied brands together across the group. The economy brand Tulip Inn, the mid market Golden Tulip and the upscale Royal Tulip are all set to remain. They join Louvre's Premiere Classe, Campanile and Kyriad.
But, believes Rich Gomel, a managing director at Starwood Capital, the acquisition will enhance Louvre's position to compete for corporate accounts and take advantage of increased scale.
"Starwood Capital is absolutely committed to nurturing and growing the Golden Tulip brand," said Gomel.
The deal is expected to complete by June 26.
HA Perspective: Starwood Capital has never looked entirely comfortable in the budget and economy space. Founder Barry Sternlicht in particular has seemed more interested in the upscale properties within Concorde that were parcelled up with Louvre.
The acquisition of Golden Tulip could well add to this discomfort. The challenge will be in bringing Golden Tulip further towards a functioning franchise business, taking it beyond its roots as a consortium.
A key issue is that at present, hotels bearing Golden Tulip flags pay too small a fee – a result of its origins as a consortium – to allow for the creation of a world class franchise business.
The deal has no doubt been struck at a knock down price and it will deliver a boost to performance to justify this cost. The medium to long term picture looks less happy.