Mergers and acquisition (M&A) deals in the hospitality sector haven’t picked up this year as legal issues plague properties and buyers and sellers can’t agree on valuations.
Only 12 M&A and private equity deals worth $264 million have been struck so far this year, compared to the 25 deals worth $390.7 million that happened in 2015, according to data from VCCEdge, the financial research arm of NewsCorp’s VCCircle.
Even out of this 12, two deals—Indian Hotels Company Ltd selling its Boston property for $125 million, and Embassy Group buying 73.4% stake in Le Meridien Bengaluru—accounted for a lion’s share.
Property advisers and company officials said most properties available are distressed assets either entangled with legal issues or high debt.
Secondly, price expectation mismatches between buyers and sellers are also rising as the industry is showing some signs of a turnaround.
According to consulting firm HVS Global Hospitality Service, hotel occupancy has grown for the third straight year in fiscal 2016 to 63.4%.
However, not all are convinced. “The general sense is to wait for little longer and see how the market is shaping up. Buyers want more evidence (that) the market is really turning around. So, they have been waiting to see whether the performances are just a temporary spike or whether (it is) to stay,” said Mandeep Lamba, managing director (hotels and hospitality) at property consultant JLL India.
Others say that there are not enough assets available and those available are distressed and in the possession of banks.
“Not many good assets are available in the market. There are legal tussles going on between banks and promoters for those assets which are distressed. Therefore, diligence… becomes a challenge,” said Sanjay Sethi, managing director and chief executive of Chalet Hotels, a part of K Raheja Corp, which is in talks to acquire two properties.
In July, a consortium of banks led by Punjab National Bank took over an upcoming 21-floor star hotel from Hyderabad-based Viceroy Hotels for allegedly defaulting on repayment of loans of Rs310.56 crore. In August, the consortium took possession of Hotel Park Plaza in Chandigarh due to default in the loan payment.
Business conglomerate ITC’s plan to acquire Park Hyatt in Goa for over Rs500 crore is still pending following a Bombay high court order to stop the sale of the property. The auction was challenged by its original owner, Blue Coast Hotels, saying the price offered for the asset was cheap.
“A lot of deals are going through bank restructuring. Last six-eight months, there have been active dialogues between lenders and the owners as to how to resolve the situation. That conversation between current owners and lenders to find a solution is taking time,” said Ashish Jakhanwala, managing director and chief executive officer, Samhi Hotels, a Gurgaon-based hospitality firm.
Samhi Hotels, which operates 16 hotels across the country, is looking to invest up to Rs500 crore to acquire two hotels by the end of the year.
