A new Cornell hospitality analysis finds that the rush of lodging mergers and acquisitions of 2004 through 2007 was the largest ever recorded in the hospitality industry. Although the credit freeze of 2008 brought that activity to a halt, a new report from the Cornell Center for Hospitality Research focuses on the characteristics of companies most likely to be taken over. The report, "Who's Next? An Analysis of Lodging Industry Acquisitions," by Qingzhong Ma and Peng Liu, allows investors and owners to anticipate where acquisitions might occur once such activity resumes. The report is available for free download from the CHR at .

The hotel merger and acquisition targets were most likely to be either a large hotel company or a relatively small real estate investment trust (REIT), Ma and Liu found. Both are assistant professors at the Cornell School of Hotel Administration. Other takeover targets tended to have a high percentage of fixed assets and a low level of debt, and displayed a mismatch between growth prospects and available resources.

"One thing we did not find was support for the idea that a company's performance made it a target, and we also saw no effect of book-to-market ratios," said Ma. "Both of those are often considered to be factors in acquisitions."

Liu suggested that further research is needed to determine exactly why deal makers preferred large operators and small REITs. "One clue from other research is that REITs are more transparent in financial management, as tax regulations require that REITs must pay out 90 percent of their taxable income as dividends and maintain 75 percent of their income and assets in real estate related activities," he said. "It may be that these special tax regulations make the REITs particularly attractive, so that they behave differently from hotel operating companies."

Ma and Liu add that the availability of credit will eventually return, and they believe that their hospitality analysis will be useful both for lodging company owners and investors who wish to attract an acquisition, and for those who want to make their firm unattractive to potential takeovers.

Thanks to the support of the CHR partners listed below, all publications posted on the center's website are available free of charge, at .

About the Center for Hospitality Research

The purpose of the Center for Hospitality Research is to enable and conduct research of significance to the global hospitality and related service industries. CHR also works to improve the connections between academe and industry, continuing the School of Hotel Administration's long-standing tradition of service to the hospitality industry. Founded in 1992, CHR remains the industry's foremost creator and distributor of timely research, all of which is posted at no charge for all to use. In addition to its industry advisory board, CHR convenes several industry roundtables each year for the purpose of identifying new issues affecting the hospitality industry.

Center Members: Accenture • Access Point Financial, Inc. • Barclaycard US • Cvent • Davis & Gilbert LLP • Deloitte & Touche USA LLP • DerbySoft • Four Seasons Hotels and Resorts • Fox Rothschild LLP • Hilton Worldwide • Host Hotels & Resorts • Hyatt Hotels Corporation • IDeaS Revenue Solutions • InterContinental Hotels Group • Jumeirah Group • Marriott International • NTT DATA • Preferred Hotels & Resorts • priceline.com • PwC • The Rainmaker Group • RateGain • ReviewPro • Revinate • Sabre Hospitality Solutions • STR • Taj Hotels Resorts and Palaces • Tata Consultancy Services • Wipro EcoEnergy • Wyndham Hotel Group

Glenn Withiam
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CHR