IMHI Class of 2016-2017

IMHI Class of 2016-2017
Class of 2016-2017

Tuesday, February 2, 2016

Marriott International's Acquisition of Starwood Hotels & Resorts Assessment

By Daniel Alexandre Portoraro, MBA in Hospitality Management, Canada/Italy, 2014-2016 2nd Year

Last November, Marriott International announced its surprise acquisition of Starwood Hotels & Resorts for roughly $12 billion. This has led Marriott to become the world’s number one hotel operator, with over a million rooms across 5,500 hotels. Below, we’ll run a (very) quick Four Dimensions of Fit assessment to see, from a strategic perspective, whether this deal makes sense.

1. Strategic Fit

Simply put, there is a very strong strategic fit between the two firms. Both are direct competitors across various market segments, and while Marriott may be the larger company, it faces stiff competition from Starwood at the luxury, and lifestyle luxury segments. 

There is even stronger fit when one considers that Marriott, post-acquisition, will have unmatched bargaining power in face of online travel agents (OTAs) which will allow them to command lower commission fees, but also diverge dependence via stronger technological prowess. Needless to say, this deal also allows Marriott to operate in a stronger position against other competing operators (e.g. Hilton, Hyatt.) 

2. Resource Fit

This is where things get even more interesting. There is a significant amount of resource overlap between the two companies as they operate within the same industry. This extends to brands (e.g. EDITION vs W; Ritz-Carlton vs St. Regis; Delta vs Sheraton, etc.), and while some may fear for cannibalization, one must remember it’s often better to destroy one’s own market share, as opposed to cede it to a competing firm. 

But branding isn’t everything; one key driver for the acquisition is also Starwood’s leading loyalty program, SPG. In fact, SPG is so strong that upon announcement of the acquisition, program members were immediate in voicing their concern that their cherished benefits would evaporate (Marriott CEO Arne Sorenson was quick to assure SPG members that this would not be the case.)

And let’s not forget of other deep synergies that can be optimized between these two firms, namely in distribution, sales and marketing, development networks, and maybe most importantly, technologies, which will help Marriott fight back against margin-munching OTAs.

3. Organizational Fit

We see a good fit between these two firms in terms of their organization; both are based within relatively close proximity to one another, and seem to be similar in their decision-making process. Taking a look at the firms’ respective timelines, we see they operate quickly. For example, within a single year, Marriott acquired both Delta Hotels and Protea Hotels (firms which operate in two completely different markets, Canada, and Africa, respectively.) Between 1997 and 1999, Starwood – hold your breath, now – acquired Sheraton ($14.3 billion), Westin ($1.8 billion), rebranded themselves as Starwood Hotels & Resorts, and launched their landmark W Hotel brand. Needless to say, it’s doubtful one organizational structure will slow down the other.

That said, we see some discrepancy in how these firms are structured; Marriott is a firm with family-heavy ties (Sorenson is the first non-Marriott CEO to be appointed.) Starwood, on the other hand, was created for tax reasons. We will see below how this affect the cultural fit between the two companies.

4. Culture Fit

There is the potential for a bit of culture conflict in regards to this acquisition. This may be best exemplified by the origins of the companies’ names (Marriott: family name; Starwood: investment fund.) In Starwood’s case, we may see more of a financier mindset at play, compared to Marriott’s hotelier bent. At the management level, we see a discrepancy as well: the average length of stay for a chief Marriott executive (e.g. CFO) is 19 years, compared to Starwood’s average of five years. That said, both firms are American, publically-traded, and thus, seek to generate value to shareholders – a definite positive which eases the acquisition process. Furthermore, as Sorenson said job cuts will begin at the executive level, we may see a better alignment of top brass pedigree, and therefore, a more consistent culture.

Naturally, there is a great deal more to be said about this acquisition, and this version of the Four Dimensions of Fit only begins to scratch the surface of one of the largest deals in the history of the hospitality industry. But overall, we can see a strong fit between the two firms, thus signaling the first step in a successful acquisition deal.

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