The hotel industry has an even bigger giant emerging from China as Shanghai Jinjiang International Hotels Development Co. has acquired an 81% stake in Keystone Lodging Holdings Ltd., owner of 7 Days Group Holdings Ltd. and the forward-facing Plateno Group of hotels for a reported US$1.3 billion. The deal gives the combined companies approximately 6,000 hotels and 640,000 rooms.
The deal, which will be funded with cash and loans, comes two years after Plateno took the economy brand-focused 7 Days private with funding from Carlyle Group and Sequoia Capital China.
“I don’t think Jinjiang will immediately improve the performance levels of these hotels as I don’t think they will merge smoothly in culture and core values as both companies are totally different in background,” Horwath HTL’s Beijing-based consultant Julie Dai told HOTELS. “However, with such big size, Jinjiang might figure out new business opportunities from the resources they have owned. It might be big data, self created booking channels or other technology solutions, etc.”
The deal will increase Jinjiang’s debt-to-asset ratio to 72.9% from 68.2%, the company said. It also gives Keystone an enterprise value of 10.8 billion yuan (US$1.7 billion), Jinjiang said in a statement to the Shanghai Stock Exchange Friday announcing the deal.
“This buy marks a major step in our expansion, especially in adding brands in middle to high-end hotels,” Jinjiang said in the statement.
Dai told HOTELS the deal gives Jinjiang the ability possibly “expand its membership numbers and further dig value from the big membership pool,” adding it should also improve operational efficiency and help achieve better GOP performance by decreasing operating costs.
Dai’s colleague, Horwath’s Robert Hecker in Singapore, added, “Jinjiang is still rather China heavy in content, but both (Jinjiang and Plateno) are actively expanding their overseas representation, both in ownership (Jinjiang) and management (Plateno). They still have a long way to go in terms of international coverage, but are definitely formidable with their combined balance sheet and the China source market to draw from.”
For Plateno, Dai added, the deal should allow investors to cash out at a time when budget hotel chains are turning down in both development and operation performance. She said it also gives Plateno access to the public capital market through merging with publically listed Jinjiang.