Is NYSE-listed Wyndham in talks to buy Sarovar Hotels?

A big deal is brewing in the Indian hospitality industry with global hospitality major Wyndham Hotel Group (WHG) scouring acquisition targets in India. WHG is one of the world's leading hospitality companies with 7,670 hotels and 667,000 rooms, which operates 25 hotels in India.

Industry sources told dna that WHG's president and chief executive officer Geoff A Ballotti, along with key company executives, was recently in New Delhi to discuss and evaluate acquisition possibilities.

In what can be termed as a deal that's still work-in-progress, the WHG team met the top executives of Anil Madhok-promoted Sarovar Hotels & Resorts, and if sources are to be believed, they have walked some distance in that direction. Mediating the deal for Sarovar Hotels is Ritesh Chandra, executive director and head - consumer group, Avendus Capital, in which the US private equity major Kohlberg Kravis Roberts and Co (KKR) recently acquired a majority stake.

The Wyndham, Sarovar and Avendus executives met and discussed the acquisition and/or strategic investment possibilities for a couple of days at the erstwhile Aman New Delhi Hotel (owned by DLF Ltd) now renamed as The Lodhi. However, dna could not ascertain if the meeting was successful or not.

The development comes close on the heels of recently announced merger of global hospitality giants Starwood and Marriott, which has shaken up hospitality sector in India with the combine becoming the largest player in the sector.

Sarovar's portfolio comprises over 5,600 guestrooms spread across 69 operational hotels across 48 cities. This apart, it has 19 hotels in various stages of development. Sarovar's current footprint includes 10 hotels in the premium segment (Sarovar Premiere), 37 hotels in the mid-market segment (Sarovar Portico) and eight in the budget segment (Hometel). This apart, it also has a franchise agreement with Carlson Hotels for eight Park Plaza hotels, three Park Inn hotels, and one Radisson hotel. In the international market, Sarovar manages one Portico and two Premiere branded hotels in Nairobi and one Premiere hotel in Tanzania.

E-mail queries to Ballotti and Wyndham's corporate communications officials in the US remained unanswered at the time of going to print. Similarly, e-mails sent to Wyndham's India office in Gurgaon seeking comments did not elicit a response. Anil Madhok could not be reached and an e-mail seeking comments remained unanswered.

While Chandra did not respond to dna's email, an Avendus Capital spokesperson said, "As a policy, we do not comment on any non-public information."

Denying any such possibilities though, Ajay Bakaya, executive director, Sarovar Hotels & Resorts, said that Sarovar was definitely not looking at sale.

"We have private equity firms (Bessemer Venture Partners Trust and New Vernon Private Equity) as financial investors in the company and they would be happy to flip stake provided there was a good offer. That's all on the books at the moment," said Bakaya.

Both Bessemer and New Vernon had invested Rs 37.5 crore in the hotel company in 2005 when Sarovar was looking to pump in Rs 200 crore towards developing 50 Hometel – its budget hotel brand – properties across India over the next five years. It currently operates eight Hometel hotels in India, of which two (one each in Chandigarh and Roorkee) are company owned and rest are management contracts.

On discussions being initiated with Wyndham, a subsequent visit by top executives to Sarovar Hotels premises and discussions getting in the advanced stages, Bakaya said, "There is no advanced stages of negotiations at all. Wyndham has in the past come and looked at numbers, so it's well before it gets into exciting times," said Bakaya.

A part of NYSE-listed Wyndham Worldwide Corporation, WHG's India footprint includes 25 hotels across three brands – Ramada, Howard Johnson and Days Hotel brands. The company also has franchising and management rights for Planet Hollywood hotel brand as well as Dream and Night hotel brands owned by Indian-American hotelier Sant Singh Chatwal of Chatwal Hotels & Resorts. Having a significant presence in India, the vacation ownership or time-share business under the banner RCI is also owned by Wyndham Worldwide.

Interestingly, this is not the first time Sarovar Hotels has looked at selling off its hotels portfolio. According to industry sources, the promoters had explored the market over a couple of years ago but the deal couldn't get through for various reasons including a mismatch of valuation expectations.

The Indian hospitality industry has gone through very tough times over the past few years as a result of which development plans by various Indian and international hotel chains faced major setbacks. With pressure building, the industry was expecting increased level of merger and acquisition activity in the market.

Another company Berggruen Hotels that operates 14 mid-market, business and leisure hotels under the 'Keys' brand had explored the sale option in 2014. The hotel company, which recently re-branded the portfolio introducing two new brands (Keys Prima and Keys Lite), was launched in 2006 with investments from Nicolas Berggruen, an investor and the founder and president of Berggruen Holdings, a private investment company.

While Premier Inn, a mid-market hotel brand owned by one of UK's largest hotel, restaurant and coffee shop operator Whitbread, was the key suitor for the 'Keys Hotels' chain, the deal was called off for reasons not known. In March 2015, the Chaudhary Group (CG) Hotels and Resorts from Nepal had made a strategic investment of Rs 50 crore in an Indian hotel management company called Concept Hospitality, which owns The Fern Brand in India (Fern Hotels and Resorts, the Fern Residency and the Beacon).

It needs to be seen now if Sarovar gets second time lucky and successfully completes the transaction this time around. And if the Wyndham-Sarovar deal does get through, it could very well trigger further consolidation in the Indian hospitality market.