Hospitality and Leisure Practice Update

Merger Fever Continues

2017 certainly has started with a bang! There are plenty of reasons to be optimistic about this New Year. Whether it is the cash burning holes in the pockets of private equity firms or public companies looking to impress shareholders, company acquisitions and mergers will continue in 2017. Merger fever – one of the defining Hospitality Industry trends of 2016 – is still hot. RSR Partners believes it likely that the big guns will continue their acquisitions, and that medium-sized firms will feel pressure to join forces in order to compete. The more complex our world becomes, the more people will seek out synergies, cost savings, economies of scale – and top talent.

The schedule was packed at the ALIS Conference in Los Angeles this past week. As Mit Shah of Noble Investments shared at ALIS, the leaders in the hotel industry are feeling much more optimistic in the past few months. There is still growth in most markets and investing in the sector does pay off—even in some of the tougher times of the last decade.

New brands continue to roll out, including Hilton’s launch of its 14th brand, The Tapestry Collection, which was announced at the conference. More brands mean more choices for the consumer, more options for the developers and an increased demand for more talent.

People are looking for opportunities, connections, and good deals, but when companies merge, there is a lot of work to be done to integrate the companies and the cultures. This process takes years—not months.

At RSR Partners we have witnessed history being written when companies with like minds merge, but we have also seen companies try to force unnatural fits. Merging company cultures is not an easy task, and good leadership is critical. Finding commonalities and bridging divides are essential to integration work. While financial and strategic goals are usually the stated reasons for most mergers, the success or failure of any given merger depends on whether executives have the foresight to see trouble lurking, can resolve post-merger dysfunction, and integrate the cultures and workforces into a unified whole.

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Occupancy, Rates, and Stocks Are Up. Can We Be Optimistic?

Every New Year’s Day, we take stock in our lives and look to the future. This year was no exception. As we look to 2017, hotel occupancy rates are up, stocks are up, and there are a lot of reasons for optimism. Of course, there are always reasons to be cautious, but when we look at the Hospitality & Leisure sector, people are still traveling. They are still staying in hotels and dining out. Despite societal pressures to be healthier and more mindful, chains like Pie Five and Shake Shack continue to make the lists of the fastest growing restaurant chains. Hotels are popping up in new locations at an alarming pace, and occupancy rates in most key markets are still strong. In fact, the U.S. hotel market saw a record-high occupancy rate of 65.4 percent in 2016. Room rates also rose by just over 3 percent, as did revenue per available room. According to STR, these three key performance metrics were the highest absolute values the analytics firm has ever benchmarked.

The big hotel brands are doing particularly well. Chris Nassetta, CEO of Hilton Worldwide, just spun off the company’s real estate and timeshare divisions, but he remains extremely optimistic about the numbers. Nassetta recently reported that the company is seeing the best occupancy rates in Hilton’s entire history. Arne Sorenson, CEO of Marriott International, is also enthusiastic about his company’s future and its global expansion plans. While 77% of Marriott’s rooms are based in the U.S. today, Sorenson states that 50% of the growth in the short term will come from outside the U.S. Geoff Ballotti, CEO of Wyndham Hotel Group, also speaks enthusiastically about growth outside of the U.S.

You can see the confidence that Wall Street and investors have in companies like Marriott and Hilton. Marriott has seen a significant lift in its stock price since closing the deal to buy Starwood Hotels & Resorts. Similarly, Hilton’s stock has also remained strong in the lead up to its spin offs and in the first two weeks of January. This is an auspicious start to the New Year. And we believe it is time to be optimistic about 2017 and beyond, especially as we see consumers continue to spend.

CEO Turnover: Is It Heating Up?

RSR Partners serves almost all industry sectors with the special advantage of having a strong and mature Board Practice. From this unique vantage point, we often see and hear about CEO turnover before the news hits the press. We know how seriously Boards and their governance committees take things like CEO succession and performance management, and we predict that 2017 will likely be yet another year of high CEO turnover.

While it is no secret that both the public markets and the private equity community have little patience for underperformance, it is not just falling sales that cause a company to make a change at the top. As institutional investors will confirm, shareholders are not usually content to see their companies do well; they want to see them outperform their peers.

What are CEOs doing to predict consumer trends? To innovate? Or simply to forecast well enough to avoid surprises, either for the street or PE owners? What do they do to remove obstacles for their company and their team? Sure, there are plenty of stories of CEOs who lost the battle with the Board, but were they truly listening? If the CEO knew the board wanted to grow the company through acquisition, why didn’t he or she take the risk? Did the CEO hesitate on other decisions because the numbers didn’t “pencil out” perfectly?

Private equity firms are always looking for great CEOs. Their business model is predicated on the idea that the companies they buy are often undermanaged (or undercapitalized). We believe that some of the best leaders have excelled by taking calculated risks and being bold. A great CEO must be able to make decisions swiftly, with data, and to make tough choices on products and people. They must also be capable of delivering bad news to the Board honestly and with equanimity. A great CEO not only has superior financial acumen, but he or she should also be a magnet for talent. Private equity firms and boards want CEOs who enjoy a challenge. While key decision makers should prioritize qualities like magnetism and charisma, we also know that the best CEOs also have a personal track record – one that they envision repeating.

Can You Hone Your Emotional Intelligence?

Emotional intelligence is being discussed more now than ever. Who had ever really heard of this concept a decade ago? Now, people understand the importance of having a high IQ and EQ. In fact, studies of effective leadership show that high EQ is often equally as important as business acumen, experience, and track record.

EQ is the ability to identify, understand, and manage emotions in order to positively impact interactions, communicate effectively, empathize with others, and reduce tensions.

In the hospitality industry, with its premium on service and customer satisfaction, empathy and problem solving can propel you quickly in your career. Leaders with strong EQ are better at managing staff, motivating them, and maximizing their potential. Those with high EQ excel at resolving conflicts and picking up on emotional cues. They are more adept at identifying power dynamics, knowing when to interject, and when to step back.

These skills are especially helpful in the boardroom. But EQ is critical in all areas of the hospitality industry, from the concierge at a hotel front desk to the CEO. So whether you are interacting with customers, staff, or executives, strong EQ is crucial for success. While it is difficult to learn how to raise your EQ, it can be done. This is why having a professional coach can be a CEO’s best resource.

About Our Hospitality and Leisure Practice

The Hospitality and Leisure Practice of RSR Partners helps solve complex talent issues for organizations involved in gaming, lodging, restaurants, travel, and leisure. Our team of domain experts serves its clients in search of senior leaders who can develop new strategies, strengthen brand loyalty, and improve the customer experience. Our capabilities include board recruiting and board advisory, chief executive officers and other C-suite executives, and functional experts in human resources, marketing, and finance, among other roles.

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