TRAVEL: 7 Days, Hampton Operator Finds Room at Jin Jiang Lodge
Bottom line: Jin Jiang’s purchase of a large Chinese hotel operator reflects its ambitions to become a leading player in China’s slowing market, though it could be undermined by its roots as a state-run company.
We’re finally seeing some big consolidation start to happen in China’s crowded hotel industry, with reports that Shanghai-based operator Jin Jiang (HKEx: 2006; Shanghai: 600754) is near a deal to buy the parent of formerly New York-listed 7 Days. The move comes just 7 months after Jin Jiang made another major purchase in Europe, and signals the company is clearly becoming a player to watch in China’s lodging space.
China’s hotel industry is undergoing some major changes right now, as the market suffers from oversupply created during a major build-up in the first decade of the 21st century. Leading player Homeinns (Nasdaq: HMIN) is in the process of privatizing after its stock languished on Wall Street due to lackluster growth prospects. China Lodging Group (Nasdaq: HTHT), operator of the Hanting chain, also made a major move late last year when it announced a major tie-up with French hotel giant Accor (Paris: AC). (previous post)
Frankly speaking, I’m a bit surprised to see Jin Jiang emerging as a major industry consolidator with this latest deal. The original art deco-style hotel bearing the company’s name is a landmark in Shanghai, dating back to the city’s heyday in the early 20th century. But that same history also hints at Jin Jiang’s background as a state-run company. Such companies are typically less well-run than newer private firms like Homeinns, though they do have better access to cash for acquisitions.
According to the latest reports, Jin Jiang is close to signing a deal that would see it buy 80 percent of Plateno Group, a hotel operator whose brands include the 7 Days budget chain and also the China operations of the mid-line Hampton hotel brand owned by US giant Hilton (NYSE: HLT). (Chinese article) Hilton announced the tie-up with Plateno last year, saying the pair planned to open 400 Hamptons in China over the next few years. (previous post)
The reports also cite a source saying rumors that online travel giant Ctrip (Nasdaq: CTRP) would take part in the purchase are untrue. No purchase price was provided in the reports. But 7 Days was one of the earliest US-listed Chinese companies to privatize, after its shares languished for years in New York.
Carlyle, Sequoia Cash Out
7 Days officially de-listed in 2013 for a relatively modest buy-out price of $700 million, in a deal backed by US private equity giants Carlyle and Sequoia Capital. That would mean that Jin Jiang is probably now paying perhaps as much as $1 billion for the 80 percent of the company. Jin Jiang was in the M&A headlines late last year with an even bigger deal, which saw it purchase European hotel operator Louvre Hotels Group for up to $1.5 billion. (previous post)
Jin Jiang has been China’s most aggressive player on the global hotel stage, announcing a deal more than a year ago to take its brand into Indonesia. (previous post) By comparison, all the other operators have stayed squarely in China, where most are trying to move beyond their original positioning as budget hotel brands. But everyone is getting hit by the broader industry slowdown that shows no signs of easing.
This latest moves look like Jin Jiang’s attempts to boost its own growth both at home and abroad, and 7 Days and Hampton both look like relatively good additions to its portfolio. I’m still somewhat skeptical of the company’s ability to build a truly world-class operation, mostly because of its state-run roots and the mediocre record of its own Jin Jiang brand in China. But perhaps Jin Jiang will prove me wrong, and could even be China’s first operator to acquire a major mid-sized global brand.
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