Why Hyatt is buying Apple Leisure Group

Insight Comment
Plenty of companies have seen the way the wind is blowing and want a bigger piece of the resort market. Hyatt is spending $2.7 billion to increase its share. Apple Leisure Group is significant player in the resort market and this deal catapults Hyatt to the top tier of the luxury leisure space.

Almost two weeks ago on a conference call with analysts, Hyatt CEO Mark Hoplamazian hinted that the company would be looking at doing deals, referencing Europe as an area and the resort market as a sector.

It hasn’t taken too long for those plans to come to fruition after Hyatt agreed to buy Apple Leisure Group (ALG) for $2.7 billion in cash.

For that, the company isn’t just getting a hospitality company but one that also sells package holidays as well. ALG is perhaps best know for its operations in the Caribbean and Mexico but in recent years it has made a push into Europe – something that will certainly have pleased Hyatt when it ran the rule over the business.

Why ALG?

Hyatt has been a pretty active buyer in recent years, snapping up Two Roads Hospitality and courting but eventually missing out on Spain’s NH Hotel Group. But the Covid-19 pandemic has fundamentally changed the travel and hospitality sector. Even though plenty of people are expecting a returning to normal there’s a chance that things might be altered for good. It makes, sense then, to bolster your business in areas that look more robust like leisure travel and especially resorts.

ALG has more than 33,000 hotel rooms operating in 10 countries, growing from just nine resorts in 2007 to around 100 properties by the end of 2021. It has a pipeline of 24 executed deals with a large number of additional hotels in the development process. These hotels include resort brands such as Dreams Resorts & Spas, Breathless Resorts & Spas and Zoëtry Wellness & Spa Resorts.

“The addition of ALG’s properties will immediately double Hyatt’s global resorts footprint. ALG’s portfolio of luxury brands, leadership in the all-inclusive segment and large pipeline of new resorts will extend our reach in existing and new markets, including in Europe, and further accelerate our industry-leading net rooms growth,” Hoplamazian said.

The deal is much bigger than Hyatt’s previous acquisition of Two Roads ($2.7 billion versus $405 million) and elevates the company above its rivals in the sub-sector.

“All inclusive has been a big focus for all the hotel groups in recent years and they are high performing assets in 2021 too so this likely motivates Hyatt’s move, and puts them to global number two behind Marriott in luxury & lifestyle now by room count,” said Harry Martin, a leisure analyst at Bernstein.

“They will be banking on synergies from combining the loyalty schemes and growing the acquired brands more quickly now they are under Hyatt’s global system, along with reaching a new pool of all inclusive owners.”

Marriott has made its own moves in recent years, buying Elegant Hotels Group and securing a long-term agreement with Sunwing Travel Group’s hotel division, Blue Diamond Resorts. 

IHG Hotels and Resorts also announced its intention to grow in the sector by launching a new luxury, lifestyle collection brand.

Asset-Light Acceleration

As well as announcing the deal for ALG, Hyatt’s press release also talks up its asset-light strategy. Selling property has become the fashion for big hotel companies and Hyatt has been busily offloading huge chunks of its hotel portfolio over the last couple of years.

Buying ALG will help further transform how Hyatt makes money, increasing the percentage of revenues and earnings it generates from fees. Hyatt will also use some of the money it makes from disposals to pay down some of the debt incurred as part of the transaction.

The Price is Right

Other than the purchase price, Hyatt didn’t immediately disclose any valuation metrics, which led to some analysts suspecting it might look like a pricey deal.

“We suspect the transaction multiple will look rich on near-term earnings,” Michael Bellisario, senior research analyst at Baird said in a note to investors.

That might just be the market we’re in at the moment. Leisure travel businesses are commanding a higher price than they once did because of the new dynamics in the market.

In the coming years Hyatt’s bold move might just look like a bargain.