• Marriott gets into Africa

Marriott International has signed an agreement to buy the brands and management business of Protea Hotels for an undisclosed fee, thought to be in the region of USD200m.

Alongside Marriott’s existing pipeline, the group said the deal would make it the largest hotel company on the African continent.
The deal involves 116 hotels that South Africa’s Protea Hospitality Group operates or franchises in South Africa, Malawi, Namibia, Nigeria, Tanzania, Uganda and Zambia. South Africa dominates the portfolio, with 80 of the hotels. The Protea Hotel brand is the mainstay of the group, with 104 hotels, followed by the African Pride Hotels collection with 10 sites and Fire & Ice!, with two.

Protea said it would create a property company to retain ownership of the hotels it currently owns and retain a minority stake in other Protea-managed hotels. The pair plan to sign definitive agreements by year-end 2013 and the transaction could close in the first three months of 2014.

“The development cycle for opening new hotels in Africa is typically long, due to the challenges posed by emerging infrastructure, so joining forces with Protea Hotels and their highly respected management team is the strongest way to jump-start Marriott’s footprint in Africa,” said Alex Kyriakidis, president of Marriott International for the Middle East and Africa.

In a blog on his LinkedIn page, president & CEO Arne Sorenson said: “In the last decade, it also became clear why intellectually we wanted to join the hospitality industry in Africa. The region sports many of the world's fastest growing economies, with one of the youngest global populations and a rapidly expanding middle class. It’s a huge bright spot for travel and tourism, both as a destination and a source of new global travelers.”

Sorenson told CNBC: “Seven of the 10 largest growing economies outside Asia are in sub-Saharan Africa. Nobody is there in real force. Accor is the current biggest lodging company in sub-Saharan Africa. With this deal and our current pipeline them we think we’ll be biggest and, with Accor, significantly larger than any other company in the world.”

Sub-Saharan Africa’s economic growth of around 5.8% is second only to developing Asia, according to the IMF. Marriott said that the continent’s GDP was anticipated to grow at over 5% annually over the next several years, which it expected would raise more people into the emerging middle class. 

According to W Hospitality Group’s 2013 development survey, the pace of new development is faster in sub-Saharan Africa than it is in North Africa, with more rooms in the development pipeline below the Sahara than above it for the first time since the group started the survey in 2009.

It added: “In many respects Africa, most especially sub-Saharan Africa, is in rather better shape than Europe! Government debt in sub-Saharan Africa is around one third of GDP, whilst the figure in the Euro area is well over twice that figure, at 87%.”

At the beginning of 2013, the international and regional hotel chains which contributed to the survey reported a total of 207 hotels in their development pipelines in Africa, with almost 40,000 rooms. This included only those binding deals which had been signed between a hotel chain and an owner, and was up almost one third on two years ago.

In North Africa, the development pipeline grew by 9% in 2013. In sub-Saharan Africa, however, the increase was 23%. This compares to 4% growth in Europe and 8.6% growth in Asia Pacific, according to pipeline data produced by STR Global (although the growth in Africa is from a much lower base).

Talking to Hotel Analyst, Trevor Ward, W Hospitality Group managing director, said: “Great strategic move for Marriott, they have nothing currently in sub-Saharan Africa, at a stroke they have the largest portfolio in terms of hotels (but Accor is bigger in terms of rooms).  I assume they will keep the Protea name for the smaller hotels, and rebrand those of the larger ones that meet brand standards to Marriott or perhaps Renaissance. 

“I guess the benefit for Protea-branded hotels will be the distribution that Marriott can bring, also new management methods.  For those hotels that are rebranded, they may well be able to gain in ADR, as well as additional occupancy through Marriott's marketing.

“Other operators had been looking at Protea, but didn't pull it off.  Talking to some hotel chain development guys last week, they clearly see this as a threat, in terms of greater competition.”

 

HA Perspective: At Marriott’s last earnings call, when Sorenson was asked whether, in the light of Moxy, AC Hotels and Autograph, the company was done adding brands, he said he was optimistic that it would continue, although not at the rate of two or three a year, as it has done recently.

He added: “I suspect we'll continue to add some regional or local brands as we go forward to make sure we're getting as much of that global growth as we can. We're always going to be driven by whether or not those investments we think give us not just better returns from the customer capital, but really give us new platforms that allow us to get to a place where we can grow by adding units essentially with no capital investment or very, very slight capital investment.”

Sorenson suspected right indeed, although, as Ward points out, it is likely that many of the hotels will be rebranded as Marriotts. This deal is less about Protea and more about access to bricks and mortar, given that the greatest issue in Africa is getting a hotel out of the ground. The group will now hope that its new dominance will attract owners and allow it to pursue its plan for capital-light growth.

But it’s not as easy as just spending your USD200m and congratulating yourself on your readymade empire. You must rule wisely. Marriott has the hotel expertise, but does it have the Africa expertise that those operators who have been on the ground longer have accrued? For Marriott to use Protea as a platform for growth in the continent, it is wise to stick close to existing management. What works in Bethseda may not work in Bloemfontein.

 

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