Trends in the lodging industry in Latin America (including Central and South America, Mexico and the Caribbean are, in general, consistent with those in the United States and elsewhere in that consolidation is at least occurring, albeit at a slower rate. Presently. consolidation is occurring mainly in terms of branding and chain affiliation; the actual ownership of hotel assets in Latin America remains highly fragmented.
So, the more traditional consolidation occurring in the United States. primar-ily as a result of true mergers and acquisitions activity, has yet to occur in Latin America for a number of reasons. among the more salient of which include:
Few Merger & Acquisition Opportunities
M&A activity naturally pre-supposes that companies exist to either merge with or to acquire. One of the reasons why Latin America is consid-ered to be ripe with opportunity is the relative lack of large and sophisticated local lodging companies. The flip side. however, is the lack of attractive M&A candidates. As a result, international chains are purchasing and reflagging individual properties (or building new hotels) rather than merging with a Latin American chain.
Lack of Economies of Scale
Until very recently, the fragmented structure of the Latin America
lodging market precluded the development of economies of scale within lodging
companies. Even international hotel chains' activity in Latin America was
largely confined to single countries, with ITT Sheraton perhaps being the
main exception.
Complicated Deal Structure/Elevated Deal Cost
Many national hotel companies in Latin America have issues and extenuating
circumstances which complicate and or elevate the potential cost of a transaction
beyond that typically experienced in the United States. These issues stem
from a myriad of causes, including among other things:
Not only are there few' attractive lodging company targets, much of
the existing inventory of physical product is not considered suitable due
to:
Other trends which often serve as harbingers of lodging growth are occurring throughout the region. These include intra-regional travel, establishment of regional trading blocks, macro-economic stability, increasingly deep and sophisticated local capital markets, rapidly growing foreign portfolios and direct foreign investment, among others.
In the future, the trend toward consolidation is expected to gain some momentum in Latin America. That trend is likely to be typically characterized by well-located, but often poorly operated hotels being sold by family-owned conglomerates. These conglomerates' motivation to sell is the strategy to fight off increased global competition by focusing on their core businesses.
The Real Estate Report is published by KPMG's National Real Estate, Hospitality, and Construction Practice. © 1997 by KPMG Peat Marwick LLP All rights reserved. For additional information email KPMG.
Please contact Hotel.Online with your comments and suggestions.