Berenberg Sees M&A Activity Just Beginning In The Leisure Sector

Stuart Gordon of Berenberg commented on the Leisure group, noting the sector remains ‘ripe' for further consolidation and Marriott International Inc MAR's acquisition of Starwood Hotels & Resorts Worldwide Inc HOT is "only the first deal."
Gordon cited valuations that are below historical highs as a motivating factor for further deals.
The analyst added that the hotel industry remains a ‘structural growth story.'

Stuart Gordon of Berenberg continues to advocate that the Leisure sector remains ripe for further consolidation and the acquisition of Starwood by Marriott is the first large deal of many to come. According to Gordon, the Leisuer space remains "suited" for consolidation for four reasons: 1) debt remains cheap, 2) valuations are below their historical highs, 3) the potential for "substantial" synergies, and 4) OTA (online travel agencies) are consolidating with "little likelihood" of any regulatory intervention. Related Link:

Canaccord Upgrades Marriott, Likes Starwood Acquisition Gordon continued that the hotel industry "is and remains a structural growth story" as the top six global companies "dominate" the worldwide pipeline and represent around 75 percent of all new planned hotel openings. The analyst suggested that this could deliver four to six percent of gross increases in the system per annum and a growth between 2.5 and five percent per company. Gordon initiated coverage of several US-based hotel chains, including Starwood, Marriott, and Hyatt Hotels Corporation H with Buy ratings. Of those names, the analyst's top pick is Marriott. Marriott, Starwood Deal To Create ‘Significant' Upside' Gordon noted that Marriott's bid for Starwood has "met with a lukewarm reception" given the deal structure. The analyst stated that he is "more sanguine" on the structure and it will deliver "significant upside" for both sets of investors as synergies could exceed $200 million. Gordon further argued that the deal will create the world's largest hotel group. He added that in today's digital and mobility age, the type of scale that will be realized by merging the two hotel chains, is "critical beyond the simple synergies that will be derived." Finally, the analyst pointed out that Marriott has bought back 146 million shares of its own company over the past five years – and will be able to buy back at least the same amount of shares over the next five even at a higher stock valuation. Hyatt Hotels: Justified Valuation According to Gordon, Hyatt has the highest real estate valuation among all of the large peers, relative to its $7.6 billion enterprise value. This should be of "little surprise" given the fact that the company owns or leases almost 13 percent of its room portfolio – outranking the group average of just under seven percent. With that said, Gordon argued that Hyatt "clearly leads the way" in terms of potential value which could be created by a divestment program. In other words, investors should be "reasonably confident" that future asset sales will "continue to unlock value" in Hyatt's portfolio.

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