Private equity floods hospitality sector

It’s no secret that private equity real estate firms have been checking into hotels.  

So far in 2007, total hotel buyouts in the US were valued at $27.5 billion (€20 billion), compared with $3.9 billion over the same period last year, an increase of over 600 percent, according to statistics from financial information group Dealogic.

Of course, the 2007 year-to-date figures include last month’s $25.6 billion buyout of Hilton Hotels by The Blackstone Group, while the 2006 YTD numbers do not include the October buyout of hotel-and-casino company Harrah’s Entertainment by Apollo Management and Texas Pacific Group for $27.4 billion.

The 2007 YTD numbers have nearly reached figures for all of 2006, during which $31.32 billion worth of hotel buyout deals were announced.

There has been an acceleration of hotel buyout activity in recent years. From 2005 to 2006, private equity real estate activity in the US hotel sector increased 372 percent, growing from $6.6 billion to $31.3 billion.

Global hotels LBO activity in 2007 YTD increased 225 percent over the same period last year. Approximately $31.2 billion in deals have been executed so far this year globally. Values for 2005 to 2006 increased 432 percent, from $8.4 billion in 2005 to $44.8 billion in 2006. The number of transactions also doubled from 14 to 28.

Hotel buyouts are part of a robust mergers and acquisitions market for the lodging industry. From 2005 to 2006, the value of all merger and acquisition activity in the US hotel sector nearly doubled from $29.7 billion to $58.8 billion, according to figures provided by Dealogic. The number of transactions also increased from 132 to 137.

On the global front, the total value of hotel M&A deals increased from $60.7 billion in 2005 to $105.8 billion in 2006, a 74 percent increase.

Among the top global hotel deals in recent years, private equity deals have stood out as the highest in terms of value of transaction, with high-profile transactions like Harrah’s Entertainment, acquired by Apollo Management and TPG, and Hilton Hotels, to be acquired by The Blackstone Group.

The Hilton deal alone, valued at $25.6 billion, accounted for about 82 percent of total global hotels buyout activity so far this year.