AccorHotels has entered into exclusive negotiations with SBE Entertainment group to acquire a 50% stake in the company, which includes the Mondrian brand.
The investment, totalling USD319m, would give AccorHotels a deeper footing in both the US and luxury markets, as SBE looks to accelerate its global growth.
AccorHotels will acquire the 50% of SBE’s common equity held in part by Cain International for USD125m. SBE founder & CEO Sam Nazarian will continue to own the remaining 50%. Also, AccorHotels will invest USD194m to acquire preferred equity that is owned by Cain International and Yucaipa.
Cain International and Yucaipa acquired their stake as part of SBE’s takeover of Morgans Hotel Group. Yucaipa’s Ron Burkle was a principal player in the dramas at Morgans Hotel Group during three years of boardroom wranglings, at one point describing then-interim CEO Jason Kalisman as “acting like a spoiled child” for not selling the company.
SBE will continue to be led by Nazarian from its New York headquarters. Nazarian said: “Building on our acquisition of Morgans Hotel Group in 2016, this investment will further accelerate our growth both domestically in the US and in new markets internationally, particularly in Europe.
“SBE and AccorHotels together are committed to bringing our unique lifestyle experiential offering to more destinations and serving our discerning guests with unforgettable memories.”
Sébastien Bazin, chairman & CEO, AccorHotels: “I am delighted to announce this strategic partnership with one of the most innovative groups in the luxury lifestyle space worldwide. It marks a new step in expanding AccorHotels’ footprint in this fast growing segment in key US cities such as Miami, Los Angeles or Las Vegas, and in other international destinations.
“‘The new luxury’ is all about exclusive experiences and incredible lifestyle concepts and SBE brands have the perfect know-how that will complete perfectly the AccorHotels portfolio. We remain committed to providing all our guests with unparalleled service and always renewed experiences around the world.”
The deal came after last year’s abortive attempt by SBE to merge with restaurant group Hakkasan and create “the most dynamic hospitality, residential, restaurant and entertainment company in the industry”. It was not clear what had stymied the deal at the time of writing.
SBE’s acquisition of Morgans Hotel Group valued the group at USD794m, a 69% premium to Morgans’ share price before the announcement. SBE saw off competition from a mysterious ‘Bidder V’, the identity of which had never been made public. Hyatt Hotels Corporation was thought to have made a move on the group back in 2012.
The cash deal brought to an end several years of ructions at Morgans, which saw SBE linked to the purchase more than once. Nazarian said: “Our strategic vision is to operate these amazing and unique lifestyle properties in key international gateway markets, and Morgans’ hotels, along with their talented team, fit perfectly within that vision.
“SBE will leverage best-in-class brands across the combined company, further driving both short- and long-term revenue growth. We are very excited about the opportunities ahead. Our acquisition of Morgans will allow SBE to become a truly disruptive and value-add force across all platforms of hospitality, residential, entertainment, F&B and development.”
The deal saw SBE add five hotel properties by the end of last year with the opening of SLS Brickell in Miami, Townhouse Hotel in Miami Beach, SLS Park Avenue in New York City, Hyde Hallandale in Florida and the Mondrian Doha, to reach a total of 25 hotels.
Since the deal was completed, SBE has announced 10 hotel residences and restaurant deals globally, as part of its strategy to double its global hotel footprint by 2021. These included licensing and management deals have been signed for SBE’s flagship SLS brand with plans to open in Mexico, Qatar, Uruguay and Argentina.
Adding to its Middle Eastern pipeline, SBE is working with its partner from Mondrian Doha, Al Hamla Real Estate Investments, to introduce the SLS brand to The Pearl development in Doha, Qatar.
In Latin America, SBE will manage SLS Mexico City Pedregal, a 150 key hotel with 150 key branded residences located in the upmarket Pedregal area of Mexico City. The agreement with IDU, Mexico City’s largest residential developer, will see the ground-up build open in 2021.
HA Perspective [by Katherine Doggrell]: Like so many deranged Jane Austen ladies, never had we seen such a frenzy of letter writing as during the Morgans debacle. The shenanigans at NH Hotels Group, while having much to recommend them, just didn’t touch the sides.
When the deal was finally done with SBE, the fear was was that Morgans would prove lost, impossible to resuscitate after years of infighting. One observer close to Hotel Analyst, who wished to remain anonymous, commented at the time: “Morgans needed a marquee player like a Hilton, Marriott. In Nazarian and SBE they’ve got a business that modelled itself on themselves. Assuming SBE is on that same trajectory what possible good could come from it? Critical mass and global domination doesn’t fix a P&L – it just makes it bigger – proportionately. For Sam to make a statement, he’s going to have to destroy everything and start from scratch, which just isn’t financially viable in one man’s lifetime.
“This is vanity – Sam’s checking his hair.”
That same – still anonymous – commentator described this latest deal as a “mess” and a “sad, sad moment”. Much of that emotion related to the Morgans brand – another groundbreaker in its time – and its new position as one of a stable of many, barely mentioned in the chatter around the deal.
But there are other concerns around this deal, which on the face of it seems like another in the AccorHotels vein which we saw with 25hours and Mama Shelter – buy a chunk and sit back and let management work its magic. Unlike those two perky startups, Morgans comes with plenty of baggage. This financial side was largely resolved by the injection from Cain and Yucaipa and the sell-off of a number of assets which kept a number of lawyers happy for a number of years. Whether there may still be a taint around some brands may explain the back seat given to the Morgans name.
Certainly the global expansion announced at the end of last year was all fresh and new and not a waft of ownership to worry anyone. And herein lies the appeal for AccorHotels, which is looking ahead while the ghosts of Burkle and his fellow scribes frighten the rest of us in the small hours. The company has spoken recently about its ambitions in North America, where it previously owned Red Roof Inn and Motel 6. Having left as a budget player it is returning as a luxury trendsetter. A transatlantic upgrade for which it is surely worth donning your ballgown and smiling nicely at the captain.
Additional comment [by Andrew Sangster]: At an early stage of my career I used to write about the pub industry in the UK. It was a time when theme bars were all the rage and UK high streets were littered with temples of chrome and glass.
Unfortunately for investors, many of the concepts proved to have short-life spans. The higher turnover generated for a few months did not pay back the capital investment that needed to see higher sales over a several years.
And so it is with the fashion end of the hotel business. Potentially higher returns but significantly higher risk too. For real estate investors, whether in pubs or hotels, it looked much safer to bet on the sure and steady options.
But the rise and rise of the experience economy is challenging these presumptions. The standard beige box is no longer capable of yielding sufficiently to make it a viable alternative to the riskier plays on offer.
Real estate investors now have to roll up their sleeves and get to grips with the newer concepts to make sure the businesses that occupy the property can support the rental payments. The short-cut route to this is to employ a manager who can do this on behalf of the investor.
Accor gets this and is investing to acquire the sorts of skills that a successful manager of experience economy accommodation needs. And it is skills and knowledge rather than physical assets that matter here.
The SBE website says this in the “about us” section: “We view hospitality as fluid and ever-changing, influenced by culture, preference and innate desire in us all to enjoy something meaningful”. It is very hard to fault this analysis. Their ability to execute is what matters and Accor is clearly expressing confidence that SBE can succeed.