Skip navigation
Front Desk

Marriott's Sorenson Takes the Acquisition Plunge

Arne Sorenson didn't take long to put his stamp on Marriott. He officially became CEO of the company at the end of March, and yesterday he pulled the trigger on a significant acquisition: A $210-million deal to buy the Gaylord Hotels brand and the management contracts for the four big-box convention hotels in the company's portfolio. The move, combined with last week's $1.9 billion purchase of Motel 6 by Blackstone, seems to signal a new wave of hotel industry mergers and acquisitions. Let the dealmaking begin.

As expected, both sides of the transaction see the deal as a good one. Following the close of the transaction later in the year, Gaylord will morph into a REIT that will own the existing Gaylords and look for other complimentary acquisitions. In addition to earning management fees on the four Gaylords, Marriott gains a new brand, another vehicle for frequent guests to earn and redeem rewards points and a healthy stream of management fees. Speaking yesterday in a conference call with stock analysts, Sorenson was particularly bullish about several advantages he believes Marriott gains in the deal.

“I can't think of another company that is as good a cultural fit for Marriott than is Gaylord,” said Sorenson, echoing a long-time company value that dates back to Marriott's founding. “Both companies understand the importance of engaged and motivated front-line staff in delivering outstanding service. We've always said, ‘If you take care of the associates, they'll take care of the guests.' Gaylord believes in that creed as well.”

And while acknowledging the unique positioning of the four Gaylord properties as big-box, self-contained meeting hotels for large groups, he believes the Marriott sales and marketing machine will also be able to deliver transient and smaller group business to the properties.

Once Gaylord's stockholders approve the deal and it is finalized, the company will become a REIT, presumably with a new name. As a major consequence of that transformation, the company will give up its plans to develop a fifth Gaylord property in the Denver suburb of Aurora. As Gaylord Chairman and CEO Colin Reed explained, “REITs aren't in the business of developing real estate and neither will we.” He left the door open to invest in the project if another developer or company takes the lead risk on the Denver project.

Instead, Reed said the new company will seek acquisitions of other hotels, probably group-oriented resorts. One option, said Reed, was revitalizing what he called a “Gaylord Lite” strategy the company developed several years ago, but it was never implemented because of the recession. Under that scheme, Gaylord intended to buy or build smaller group houses (500 to 700 rooms with 75,000 to 125,000 square feet of meeting space) to serve meetings not big enough for one of the full-size Gaylords.

“We have a lot of embedded knowledge about the meetings business, and we've built a geographic profile of potential markets for these kinds of hotels,” said Reed. “Most of the planners who book one of the Gaylords also book a variety of smaller meetings. We know the cities in which they want to hold these meetings, and that will provide a roadmap for our acquisitions strategy.”

As with any large-scale acquisition, the deal leaves a few questions that so far have gone unanswered:

• While Sorenson said the company intends to operate Gaylord as a separate brand within the Marriott family, it will be interesting to see if and when the Gaylord properties will be rebranded with the “by Marriott” tagline.

• In all four markets in which Gaylord operates, Marriott also has full-service meetings-oriented hotels in the area. That's especially evident in Orlando where the Gaylord Palms competes directly for business with the 2,000-room Marriott Orlando World Center. One wonders what the owner of that property thinks about Marriott splitting its allegiances in the marketplace. (During the analyst call, Sorenson insisted the deal creates “no issues of impact” for existing Marriotts.)

• As a public company, Marriott is all about growth, but it is a costly, time-consuming process to develop hotels of the size and complexity of the existing Gaylords. Will new properties under the brand be similar in size, or will Marriott look for hybrid versions of the product to brand as Gaylords?

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish