Wave of Brazil hotel mergers brews as middle class grows

Tue Oct 8, 2013 4:58pm EDT
 
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By Marcela Ayres

SAO PAULO (Reuters) - Mergers and acquisitions in Brazil's thriving hotel industry are increasing ahead of soccer's World Cup and the Olympics, as smaller players struggle to survive and leisure travel surges among the nation's thriving middle class.

Local and foreign hotel and resort chains view consolidation as a means to cut costs and improve processes across the sector, as well as garner partners with know-how. That said, industry players agree on one point: that room for smaller players is rapidly decreasing.

Brazil's hotel market is underpenetrated, with few global chains operating throughout the country, Latin America's largest and most populous. Currently, outdated family-run hotels are spread throughout the country - most of them with limited ability to grow beyond where they are headquartered, according to Richard Cathart, an analyst with Espírito Santo Investment Bank.

Local private hotel operators plan to spend 7 billion reais ($3 billion) on expansion through 2015, according to industry group FOHB. The planned spending reflects the industry's resilience in the face of a slowdown in household consumption and high expectations for Brazil's hosting of the 2014 World Cup and the 2016 Olympics, industry leaders said.

BHG Brazil Hospitality Group SA BHGR3.SA, Brazil's No. 3 hotel chain, raised about 355 million reais ($160 million) in a March share offering, of which 80 percent will be used to buy rivals. Portugal's Grupo Pestana is selling a hotel in Rio de Janeiro to raise capital, while Hemisfério Sul Investimentos and WTorre Hoteis Holdings are tapping their cash holdings to grow in mid-sized cities.

"Our investment case is that consolidation and professionalization will drive the sector going forward," BHG Chief Executive Eduardo Bartolomeu said in an interview. "Clients will want good service and a brand in which they can trust."

HEALTHY PACE

Fresh capital should help BHG, Brazil's only listed hotel company, to outdo rivals regardless of Brazil's three years of sub-par economic and consumption growth, as about 70 percent of revenue at BHG comes from business travelers. The company wants to increase the number of available suites by 50 percent at the end of 2015 from the current 8,539.   Continued...