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Skift Take
Hilton, after 16 years without an acquisition, has gone on a buying spree this year, snapping up the Graduate Hotels and NoMad brands. Its commercial officer, Chris Silcock, explains why.
Hilton has been on a streak of acquiring hotel brands this year after going 16 years without buying any. Yet its commercial chief said that the hotel group hadn’t shifted from its decade-long corporate strategy.
“It’s driven for us by customer trends, right?” said Chris Silcock, president, global brands and commercial services. “If there is a gap in our products that customers want to stay in, then we’re going to fill it.”
In March, Hilton bought the Graduate Hotels brand. In April, it completed an all-cash purchase of a majority controlling interest in Sydell Group, which owns NoMad Hotels.
Hilton’s sudden shopping spree was a hot topic among hotel investors and owners at this week’s NYU International Hospitality Industry Investment Conference, with many speculating about potential future deals.
Silcock acknowledged that Hilton’s moves were unexpected, but he said they were consistent with the company’s long-term corporate strategy and were “purposeful and paced.” He also discouraged speculation that the company would do a lot more deals this year.
“We’ve been crystal clear on the formula for M&A, which is that brand can’t be duplicative with what we have and a deal has to make financial sense,” Silcock said. “Nothing has ever met those criteria over a long time, and it just happens that these two deals did at the same time.”
Why Hilton Bought Graduate Hotels
With the Graduate Hotels deal, Hilton entered into associated franchise contracts for a set of 33 open and 2 planned lifestyle hotels in university towns, for $210 million.
“It was a bit of a surprise when we came across it,” Silcock said. “I don’t think anywhere in the world have I found such a dedication to college pride and affinity to one’s university as in the U.S., where it’s almost a part of one’s identity. Graduate has tapped into that in a way none of our brands, or our competitors’ brands, ever has.”
Some observers question whether the college affiliation appeal will translate internationally, but Hilton plans to try to scale the brand to at least 400 Graduate Hotels worldwide.
“We can plug them into our commercial engine and our development engine, and we know that suddenly the performance of the existing hotels will pop and the growth of their pipeline will pop,” he said.
Why Hilton Bought NoMad
Silcock called the NoMad Hotels move “opportunistic.” But the purchase surprised some industry observers. NoMad only has two operating hotels, despite having been invented in 2012. (One of those hotels isn’t being bought by Hilton. The NoMad Las Vegas, which is within an MGM Resort property, will be rebranded by its owner.)
Having only two hotels after a decade doesn’t seem like a roaring success to some observers.
“Covid really hurt it,” Silcock said. “That was a stumbling block. But I do believe that it’s a sustained successful luxury lifestyle brand, and there aren’t too many if you look around.”
Sydell Group will oversee the design and food-and-beverage aspects of Hilton’s scaling of the one currently open NoMad hotel in London to “up to 100” over time, while Hilton handles everything else.
“Luxury lifestyle is a product you need to invest in to keep it as the place in a locale for people to go,” Silcock said. “You see it time and time again. Smaller brands can create great experiences. But can they sustain great top-line performance? If you plug this into Hilton’s development and commercial engines, you can enable the model to last a long time.”
Predicting Minimal Integration Risks
Because Hilton had gone so long without an acquisition, some industry observers have question whether it could absorb the new brands operationally and culturally.
Silcock downplayed the risk, noting the relatively small size of the acquisitions compared to Hilton’s overall operations. Silcock noted that Kevin Osterhaus, previously president of Graduate Hotels, will oversee the growth, design, and development of Hilton’s lifestyle brands.
Another risk: In the lifestyle segment, talent is considered a key differentiator, and employees at small companies may balk at working within a large corporation.
Some analysts pointed to a CBRE study of hotel performance data that came out this year. It found that organically grown brands have outperformed acquired brands over the past nine years. Nearly 40% of organically grown brands had above-average room and revenue per available room growth compared to 17% of acquired brands from 2013 to 2022.
Future M&A Strategy
Silcock said Hilton’s acquisition strategy focuses on identifying non-duplicative brands that can enhance their portfolio and provide financial sense. The corporate development team also looks at whether a brand has wide room to grow fees on profitable operations after being plugged into Hilton’s marketing, distribution, and development engines.
Silcock suggested that Hilton’s future mergers and acquisitions wouldn’t adhere to a fixed schedule to meet net room growth goals of at least 6% a year — as some investment banking analysts have speculated — but would rather respond to opportunities that align with the group’s strategic goals.
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