In recent weeks, the hospitality giant announced not one but two acquisitions, unveiling plans in March to take over boutique lifestyle brand Graduate Hotels from Adventurous Journeys Capital Partners (AJ Capital) for $210 million as well as acquiring a majority stake in Sydell Group and its NoMad brand for an undisclosed sum earlier this month.
Both moves represent a sudden pivot for Hilton, which has historically prioritized the development and launch of in-house brands over the purchase of existing ones.
Why the change in strategy?
According to Bjorn Hanson, industry consultant and adjunct professor at New York University's Jonathan M. Tisch Center of Hospitality, Hilton's acquisition spree comes at a time when continuing to impress company stakeholders, including investors and hotel owners, has become more challenging.
"Revenues are going up only a little more than inflation and profits are having trouble keeping up with inflation, so those aren't real growth areas," Hanson said. "A third area [for potential growth] is to increase fees, like reservation fees, marketing fees and other things, but with profits not growing favorably, it's tough to put those on franchisees and owners."
He added that joint marketing ventures and strategic partnerships can also be an appealing way to boost business, as demonstrated by Hilton's recent partnerships with Small Luxury Hotels of the World and outdoor hospitality brand AutoCamp. These sorts of unions, however, "generally don't create a lot of incremental revenue," he said.
What's left in a hospitality company's performance toolkit, Hanson explained, is unit growth.
"And, yes, Hilton could keep launching brands, but in the environment I just described, with high interest rates and the high cost of materials and labor for construction, all of a sudden acquisitions are another way to go," he said.
Graduate Hotels and Sydell Group also instantly fill white space within Hilton's 22-brand portfolio, Hanson said, and further bolster the company's presence in the lifestyle category, joining Hilton brands like Canopy, Curio Collection, Tapestry Collection, Tempo and Motto.
Graduate Hotels, which launched in 2014, has carved out a strong foothold in college markets, growing to more than 35 boutique lifestyle properties in destinations including Ann Arbor, Mich.; Knoxville, Tenn.; Palo Alto, Calif.; and Oxford and Cambridge in England. (As part of the transaction, AJ Capital will remain the owner of hotels currently operating and in the pipeline, with each hotel to be operated under long-term Hilton franchise agreements.)
Robert Cole, senior research analyst of lodging and leisure travel at Phocuswright, said the Graduate Hotels buy was an especially smart move for Hilton.
"It's a proven product that focuses on a niche segment, with a strong guest affinity that can be replicated -- while maintaining uniquely local relevance -- across a broad variety of markets," he said.
