Huazhu Group Ltd (NASDAQ: HTHT) is set to buy German firm Steigenberger hotels as it looks to extend its global expansion plans into the German market.
Huazhu will add a reputable firm to their portfolio, as Steigenberger are one of one of Germany’s most well-known upmarket chains.
Huazhu, already the world’s fifth-largest hotel group by market capitalization, is paying £604 million in cash for Steigenberger parent Deutsche Hospitality.
The deal makes a statement to competitors in the hotel industry, and will give Huazhu a major foot holding in the German market as well as exposure into Europe.
That values Deutsche Hospitality, whose brands include MAXX by Steigenberger, IntercityHotels and Zleep at 17-18 more its 2019 expected EPITDA or at less than 10 times expected 2022 core earnings.
Established brands such as Hyatt (NYSE: H) , Hilton (NYSE: HLT), Accor (EPA: AC) trade at 11-14 times their expected core earnings over the next twelve months.
Huazhu who are Chinese based, also have American operations situated in New York.
They run a business model involving franchising hotels, and on leased properties open 1,000 hotels each year. The acquisition looks to add 5,000 hotels to its file.
Deutsche Hospitality operates 118 hotels and has 36 hotels under development, with a focus on Europe. It has plans to increase that number to 250 by 2024.
The move comes at a time where competitors have had mixed experiences in the industry.
Marriott (NASDAQ: MAR) have recently purchased Elegant Hotels which form as a rival to the newly formed firm, whilst Intercontinental have been hit hard by political unrest in Hong Kong.
With the help of Huazhu that will go faster than 2024,” Huazhu Chief Executive Jenny Zhang told Reuters, adding that four of five Deutsche Hospitality brands will be rolled out in China.
No job cuts are planned as part of the deal, she said, adding that Huazhu does not expect to encounter any issues with antitrust regulators or German authorities overseeing foreign investments in the country.
“Huazhu has enormous respect and admiration particularly for the prestigious Steigenberger brand,” Qi Ji, Huazhu Group founder/executive chairman, said in a statement. “Huazhu is committed to fully respecting and embracing the heritage of the company, and working closely with the company’s associates, owners and business partners in helping to write the next chapter.”
“This acquisition is an important milestone in our global growth strategy. Deutsche Hospitality is a perfect strategic fit and we expect competitive advantages for both companies. The brands of Deutsche Hospitality will enhance the offering of Huazhu and its operating capabilities in the high-end European hotel market,” said Qi Ji Founder and Executive Chairman of Huazhu Group.