Howdy, partner! Lodging companies to management companies choose partnership over M&A

A movement is afoot, one where hotel companies—from brands to operators—are not acquiring companies straight out; rather, they are forming strategic partnerships or alliances that can prove beneficial and come without the hefty price tag.

At its most basic, a strategic partnership is typically something engaged in over a long-term period and which is mutually beneficial between two or more companies with complementary or overlapping products or services. Consider Marriott International: In July 2023, it announced a long-term strategic licensing agreement and the creation of MGM Collection with Marriott Bonvoy, encompassing 16 MGM resorts and representing more than 40,000 rooms in Las Vegas and other cities across the U.S. In short, the Marriott deal, which took effect in March 2024, enables members of MGM Rewards and Marriott Bonvoy to link accounts and receive an assortment of benefits.

Viva Las Vegas

In the case of Marriott and MGM, it’s a symbiotic relationship, where each company and, by extension, each company’s loyal guests/members, is rewarded. Beyond the obvious points accrual, sacrosanct to faithful members, it allows a new audience to market to and offers experiences—Marriott Bonvoy calls them Moments—that only each company can specifically offer, such as going behind the scenes of a Cirque du Soleil show or, for one lucky person, the honor of conducting the fountain’s watery dance at the Bellagio.

As Peggy Roe, EVP and chief customer officer of Marriott International, pointed out, Bonvoy has evolved into becoming much more than a points-based program into one that is as focused, if not more, on the curation and execution of experiences, which hold a measure of exclusivity because they are only available to loyalty members—and many times loyalty members with higher status. “People are not only just traveling more for leisure, but a lot of it is driven by their passions and the experiences they want to have,” Roe said. “Bonvoy is a loyalty program for hotels, but it allows access to this huge portfolio of experiences, which means it’s a consumer-facing brand, not only just our loyalty program.”

Consider the biggest star currently traversing the earth when she isn’t busy rooting on a famous football tight end. As Taylor Swift’s colossal-smash Eras Tour unfurls across the globe, Marriott Bonvoy has been there, partnering with the musical icon on a tour sponsorship and offering loyalty members the ability to bid points and win sweepstakes prizes, such as a trip to three different tour stops at select shows in Europe, the U.S. and Canada with two concert tickets, airfare and accommodations. (For the record, Roe said she has been to two Swifty tour stops to date.) Other so-named Marriott Bonvoy Moments include mezcal tastings with “Breaking Bad” stars Brian Cranston and Aaron Paul (they have their own mezcal brand called Dos Hombres) or a “hang” with U.S. women’s soccer standout Trinity Rodman.

For Marriott, the MGM deal is nothing short of hitting the jackpot at one of MGM’s casinos. “It’s not like every day you’re going to find a partnership with 40,000 rooms across a portfolio and with experiences that perfectly fit with your platform strategy,” Roe said. “It makes a lot of sense.”

And there is continuity—Marriott and MGM are already in business. Four properties—Bellagio, a Luxury Collection Resort & Casino, Las Vegas; ARIA Resort & Casino, Autograph Collection; Park MGM Las Vegas, a Tribute Portfolio Resort; and The Cosmopolitan of Las Vegas, Autograph Collection—are part of Marriott’s soft brands.

Meanwhile, although MGM is a gaming and lodging behemoth, there is a cost benefit to it. In a loyalty-only partnership, there is no need for MGM to pay a soft-brand fee since they don’t need the other benefits and requirements associated with it.

For Marriott, it gives them significant access to the Strip, something even a company like Marriott has more or less lacked. Roe said each customer base complements the other, with the gaming quotient now added. But it goes beyond gaming: MGM might be known as an operating company and brand that promotes and profits on gambling services, but Roe said MGM’s affinity for the Marriott flag was the extent to which it helped bring in a clientele that spent big money ancillary to gaming. “Together, you can see the value of sharing our customers,” she said.

The Partner Path

Marriott is not the only lodging company hopping aboard the partnership train. Earlier this year in March, Hyatt announced that the Rio Hotel & Casino, Las Vegas would transition into its Destination by Hyatt brand amid a property-wide renovation of the 2,500-room hotel and be made available to World of Hyatt members. It’s only the third Hyatt hotel in the Las Vegas area.

Meanwhile, Hilton, which historically has been a hotel company that likes to go at it alone by building brands on its own, has been growing of recent via M&A and strategic partnership. Of the latter, it made two large splashes in February, announcing partnerships with both Small Luxury Hotels of the World (SLH) and AutoCamp. The SLH partnership allows Hilton Honors members the ability to earn and redeem points at the some 560 participating SLH properties worldwide.

SLH Chairman Shaun Leleu noted how the partnership is a win for both companies, an alliance that benefits both equally. “We’re thrilled to begin this win-win relationship with Hilton as it brings exciting possibilities for both brands,” he said. “Hilton customers gain access to our collection of exceptional boutique hotels, while our properties enjoy amplified reach to a loyal and discerning audience. It’s a game changer for independently owned hotels on a global scale.”

In AutoCamp, Hilton guests gain direct access to accommodations and experiences tangential to the customary lodging experience—think airstreams and outdoor-specific locales, such as Yosemite, Joshua Tree and Russian River in California; and Zion, Utah, Cape Cod, Mass., and Catskills, N.Y. “We know today’s travelers are craving adventures when planning their next trip, and that’s why we look for innovative and like-minded partners like AutoCamp,” said Chris Silcock, president of global brands and commercial services for Hilton. He added that this was the first time a major hospitality brand and outdoor lodging company had joined forces, indicative of a trend where hotel companies look outside their core business for growth and more options for loyalty members.

Ever since Holiday Inn and Marriott launched loyalty programs back in 1983, the pursuit to drive brand fealty has endured and become big business through credit-card conversions and more. Any new brand launched, acquired or partnered with is all part of ameliorating a hotel company’s loyalty program, now the most important brand in the quiver, serving as the spoke that drives it all.

Chris Hartley, CEO of the Global Hotel Alliance (GHA), which claims itself the world’s largest alliance of independent hotel brands, said there is a growing trend for these sorts of loyalty partnerships, citing Marriott and MGM’s partnership. “The major chains focus on loyalty as their core strategy and seek to enrich their loyalty proposition across geographies and market segments,” he said.

GHA, Hartley said, has been doing something similar in the form of an alliance JV for the past 14 years with GHA Discovery, where member brands retain their own brand identity, but share a common rewards currency.

These loyalty alliances are a byproduct of competition for customer wallet and will only gain momentum, Hartley argued, “In particular, because customer surveys consistently [say] that the loyalty program plays a key factor in the choice of a hotel, while the scale of a program’s reach and a rich choice of brands are what customers look for in their preferred loyalty program.”

Harley said that growth of the GHA, especially in the U.S., where there are less independent players, could come through loyalty tie-ups with a major U.S. chain, “whereby we could offer reciprocal recognition, plus earn and burn capability through some form of rewards exchange,” he said.

There’s another reason behind partnerships: distribution, a major talking point in the hotel industry that involves online travel agencies and their vast marketing capabilities. The lowest reservation cost for hotel owners is through direct business and being able to market product through a larger company with further reach makes eminent sense. Likewise, travelers want optionality, a benefit of partnering with other brands. Hilton’s alignment with AutoCamp is an example that broadens a hotel company’s distribution while allowing a small emerging alternative lodging concept to tap into a large global and well-established loyalty program.

It is also why the hospitality industry continues to grow by shrinking. “Consolidation endures in the lodging sector as hotel brand and/or management companies as expanding mass and distribution is key to remaining competitive,” said Dan Lesser, co-founder, president and CEO of LW Hospitality Advisors. “There are many independent brands or smaller collections of brands that can scale by leveraging large brand family loyalty platforms.”

Managing Expectations

Action on the partnership front isn’t limited to the major brand companies. It’s seeped into the third-party management space, too. One of the most active companies to tap into this is Atlanta-based Hotel Equities, which has a portfolio of more than 250 hotels, a number it’s achieved through the use of strategic partnerships. In fact, “Strategic Partnership” is a prominent tab on the company’s website. When clicked, the explanation is: “A strategic partnership with Hotel Equities provides a collaborative alliance focused on strong cultural alignment, driving exceptional performance and maximizing shared synergies,” among other things, such as alignment of goals, values and vision, “that optimize property portfolio performance, enhance guest experiences and unlock sustainable growth opportunities.”

To date, Hotel Equities has executed seven of these partnerships with Witness Investments, Coakley & Williams, The Hotel Group, Greenwood Hospitality, National Hospitality Services, Maximum Hospitality and Trust Hospitality.

“We often use the phrase 1+1=3 with these relationships and that’s because we’ve been able to prove, now having created seven of these relationships, that we can drive innovation and achieve greater outcomes together,” said Brad Rahinsky, president and CEO of Hotel Equities. He added that strategic partnerships foster collaboration and flexibility, allowing both parties to combine strengths, expertise and resources to achieve shared goals while enabling us the ability to adapt quickly to market changes.

Partnership also provides accretive and quicker growth. “By mitigating risks and enhancing operational efficiency, partnerships provide significant financial benefits and opportunities for market expansion without the need for substantial upfront investment,” Rahinsky said.

Two words—consolidation and scale—are now fully entrenched in today’s hospitality vernacular. The more the industry attenuates, the better the companies doing the absorbing can thrive through economies of scale that provide better purchasing power, insurance savings, sharing of business intelligence tools, customer support and development and disposition services, to name several. As Rahinsky succinctly put it: “Scale matters because reach matters.”

Hotel ownership is not for the faint of heart. It is a risky business, filled, often, with things out of an owner’s control, which makes it more periling. Generating enough revenue to cover costs and debt service and showing profit at the end of each month is the goal, but getting there is not always clear sailing; in fact, it rarely is, which is why many owners seek out any advantage to make it easier. It can often come down to partnering with a management company to steer the ship. But which one and how to choose?

Management companies can range in size from the small in the stature to the demonstrably large. There is nuance in both camps. Smaller management companies might be able to offer quicker, more personalized service and services, but larger management companies can potentially drive better value. “The fear of being lost in the shuffle is real and we’ve heard directly from owners who felt overlooked by larger companies,” Rahinsky said, though, at 250-plus hotels, Hotel Equities is rather large. Still, he argued, “Our model naturally combats this in a couple ways—one is that our goal has always been to ‘get better,’ not to ‘get bigger.’ We think the bigger part happens organically when the better part is nurtured.”

Is partnership the new M&A? Maybe not. It’s more of an offshoot or hybrid form of M&A, as LWHA’s Lesser said. But it’s not going away; in fact, it will increase. “We will see more of it because everyone is under pressure to grow and it’s an easy way to do that,” Lesser said.

By David Eisen