Why Marriott acquired Delta

BETHESDA, Md., TORONTO, Ont. — Marriott has increased its Canadian portfolio by half now that it has signed definitive agreements to acquire the Delta Hotels and Resorts for C$168 million.

By Colleen Isherwood, Editor

BETHESDA, Md., TORONTO, Ont. — Marriott has increased its Canadian portfolio by half now that it has signed definitive agreements to acquire the Delta Hotels and Resorts brand and management and franchise business from Delta Hotels Limited Partnership, a subsidiary of British Columbia Investment Management Corporation (bcIMC) for C$168 million (approximately US$135 million).

The Delta brand comprises a diverse range of hotels and resorts with 38 properties and 10,000 rooms in more than 30 cities across Canada.

When completed, the transaction will increase Marriott’s distribution in Canada to more than 120 hotels and 27,000 rooms.

By comparison, Wyndham has more than 500 hotels, Choice has 311, Best Western has approximately 200, IHG has about 170 and Hilton has 104.

Under terms of the agreement, Marriott is acquiring the Delta management and franchise business, as well as the Delta brand and related intellectual property.  

At stabilization, after realizing certain operating synergies, Marriott expects the purchase price to be approximately 10 times annualized earnings before interest, taxes, depreciation and amortization (EBITDA).

bcIMC-affiliated entities own 13 Delta hotels (and one under development) and will sign new 30-year management agreements with Marriott for these properties. Third parties own the other 25 Delta hotels; 15 are managed by Delta and 10 are franchised. In total, five managed hotels (approximately 1,100 rooms) are under development.

Michael Beckley, senior vice-president development, Marriott Hotels of Canada, told CLN that they had 38 Deltas and would have another five fairly quickly due to existing development deals.

“Now we have a whole new brand, acquiring 43 in a relatively short time. We have 86 today, and added 38 for a total of 124.”

Beckley, who will be retiring at the end of the month, said that the Delta expansion is just part of Marriott’s expansion plans. “Over the next 12 months, we plan another 20 Marriotts of various brands — bringing us up to 165.”

Delta is brand number 19 for Marriott International’s total portfolio, and Beckley said it will remain as a brand, not “by Marriott” since it already has its own following.

“It’s a Canadian iconic company, with more than 90 per cent Canada-to-Canada business.”

Filling in the gaps

Delta is another full service brand linked to Marriott International’s system, and it includes a number of locations, such as Whistler, Saskatoon, and Winnipeg that will fill in Marriott Canada’s full service brand portfolio.

“Barriers to entry are just too high in certain markets, and they’re almost impossible for us to access. In Whistler, you can’t have another room in that market. In downtown Saskatoon, the Bessborough will fill a gap in our Marriott full-service portfolio. Downtown Winnipeg — a major city with 900,000 people — has no big buck Marriott.

“We’re looking for strong coast-to-coast distribution, and Delta will make us even stronger in certain market segments, and complement our existing locations,” said Manlio Marescotti, vice-president Marriott International.

Delta guests will have access to Marriott’s 4,100 hotels, the 49-million-member Marriott Rewards Club and Marriott.com which generates more than $12 billion a year, starting next quarter.

The company’s main offices will remain in Toronto, and will not be run out of the U.S., Beckley said.

Employees at Delta properties will still be employed at the hotels, according to Rick Hoffman, vice-president of mergers and acquisitions for Marriott International.

Delta metamorphosis

Over the past few years under the leadership of president and CEO Ken Greene, Delta has closed properties and built new ones in a number of Canadian cities, and extensively renovated others, with the goal of positioning the brand solidly in the four-star category.

One of the boldest moves was to close the Delta Chelsea, Canada’s largest hotel, which has now rebranded as the Eaton Chelsea.

Delta was without a downtown Toronto hotel for more than a year as its new flagship Delta Toronto was built in the South Core neighbourhood.

Ryerson University professor Gabor Forgacs told the Toronto Star that this was a good time for bcIMC to sell Delta, which they acquired in 2007. He noted that the market is looking up and evaluations are favourable.

“Whatever you bought in the recession years at good, depressed prices can be sold with a favourable, good financial outcome,” he added.

“This is just justifying how good Delta is because an American powerhouse like Marriott sees them as good enough to acquire,” Forgacs said.

In related news, Marriott’s Michael Beckley received a Lifetime Achievement Award from the Hotel Association of Canada on Feb. 3 at its annual conference.

For more information on this story: Michael Beckley named HAC Lifetime Achiever