Jones Lang LaSalle Hotels

The Value of A Hotel Brand – What Would You Pay?

London, 18th October 2001 - In the recent spate of M&A activity across the hotel industry, Jones Lang LaSalle Hotels addresses what different investors are willing to pay for a hotel brand.

What to pay for a hotel name is one of the most difficult decisions facing would-be buyers in the global acquisition game. Consider the recent acquisitions of Krasnapolsky, Posthouse, Le Meridien, Swissôtel and Scandic, the bidders paid for not only the asset base of each company, but also the brand value fostered and grown by management over time. "It is often the latter value which is more difficult to determine" stated Mark Wynne-Smith, Executive Vice President of Jones Lang LaSalle Hotels.

According to Jones Lang LaSalle Hotels, the key components of brand value are the brand name, re-branding enhancement, sales and marketing infrastructure (including marketing agreements, IT systems and customer databanks), strategic alliances and loyalty programmes, which involve both tangible and intangible components. Investors must assign a value to the current and potential future benefits of each component as well as their sustainability after the purchase. These benefits can be expressed via revenue enhancement, cost savings, opportunity costs or other methods.

"The brand name may provide potential investors with additional up-side, particularly if they do not operate their own brand. A second potential benefit of the brand name is the enhancement of the investor's value of pipeline developments as well as assisting in securing future developments by way of lease or management contract" states Mr Wynne-Smith.

Considering the Posthouse deal, it is generally accepted that Six Continents' purchase was driven by its strategy of expanding the Holiday Inn brand through the UK. Therefore it is debatable if Six Continents would have allowed for brand value for the Posthouse label, given most of the properties were to be re-branded under the Holiday Inn flag.

"The question that hotel investors must answer following an acquisition is whether to re-brand or retain the brand" states Mr Wynne-Smith. Raffles' purchase of the Swissôtel chain shows different motivations to Six Continents. "This deal was driven by the intention of retaining the Swissôtel brand which offered several key advantages to an Asian operator in respect of room distribution in Europe and the USA, management fee income and a good fit with existing brands" continues Mr Wynne-Smith.

It is not surprising that non-operators would attach a potentially higher value to hotel brands. "Unlike existing operators who can often replicate the advantages offered by certain brands, investment driven purchasers have limited operational hotel experience and are therefore more likely to depend upon the existing brand to provide the returns necessary to satisfy their investment criteria" states Mr Wynne-Smith.

Looking to the Le Meridien deal, it is interesting to note that one of the final bidders for the portfolio was Marriott who could not match Nomura's bid. "Given that Marriott would probably have re-branded the portfolio to one of their eight existing hotel brands, it is unlikely that they would have assigned significant value to the brand name, brand enhancement, central reservation system or the sale and marketing infrastructure" states Mr Wynne-Smith.

Ascribing a value to a brand is crucial to formulating a bid for a hotel company, however as all operators know, trading success is as much about a superior location, shrewd operational management and high service standards.

Contact:
Anna Town
+44 (0) 20 7399 5675
anna.town@eu.joneslanglasalle.com

Charlotte Freeman/Bernadette Wilson
+44 (0) 20 7399 5616/5610
charlotte.freeman@eu.joneslanglasalle.com

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