Best Practices For Mergers and Acquisitions in the Hospitality Industry

The hospitality industry has experienced a rise in mergers and acquisitions (M&A) as business owners look to scale operations, increase market share, or exit their businesses.

M&A Best Practices

M&A can provide significant opportunities for growth, but it also comes with challenges that require detailed planning and execution. Understanding best practices in mergers and acquisitions can help hospitality business owners navigate this complex process successfully.

Clarify Your Goals and Strategies

Before entering into a merger or acquisition, clarify what you hope to achieve. Are you looking to expand into new markets, diversify your services, or gain economies of scale? Conversely, if you’re selling, do you want to exit the industry entirely or maintain a stake in the business?

Best Practice:

Define your objectives early in the process. This will guide your decisions and help you identify potential partners or buyers whose vision aligns with yours. Whether you're acquiring or merging, strategic alignment ensures the deal will lead to long-term success.

This equally holds true as you look at exiting—having your goals and strategy determined up front will help you determine what offers meet your goals and objections and which opportunities you should pass. This helps eliminate distractions in the process, resulting in a faster and more seamless transition on the backend.

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Timing the Sale or Acquisition

Timing plays an important role in M&A decisions. For those looking to sell, the ideal time is when financial statements have consistently been strong. In these situations, multiples are generally higher in these situations. Multiples can also be positively impacted with strong leadership beyond the owner group who is able to keep operations and financial performance strong during an ownership transition.

Best Practice:

Hospitality owners considering selling should monitor their financial performance and market conditions closely. Off-peak seasons can be the right time to prepare for a sale, allowing ample time for integration and positioning before the next busy season.

Conduct Thorough Due Diligence

A successful M&A in the hospitality industry requires a deep dive into the financial, operational, and legal aspects of the target business. Whether you’re acquiring a single restaurant or merging a hotel group, understanding the business’s true value and risks is a necessity.

Best Practice:

Engage a team of advisors—legal, financial, and operational experts—to conduct thorough due diligence. This process should include evaluating financial statements, leases, real estate, labor contracts, customer data, and brand reputation. It is also important to understand the liabilities, such as pending litigation or unpaid taxes.

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Leverage Market Data and Research

Market data will help you determine the best course of action in M&A. Before entering a new market, you need to understand if it’s the right fit for your growth strategy. Exploring opportunities through market research helps determine whether M&A or organic expansion is the most beneficial route.

Best Practice:

Conduct comprehensive market research to identify suitable businesses that align with your growth goals. Reach out to potential targets to explore mutually beneficial opportunities.

Evaluate Synergies and Integration Plans

For hospitality businesses, operational synergies can often be a significant benefit of mergers and acquisitions. M&A deals can result in cost savings through shared resources, enhanced purchasing power, or improved supply chain efficiencies. However, without a clear integration plan, these synergies can be difficult to realize.

Operational synergies—such as shared resources or enhanced purchasing power—are often significant drivers of M&A deals in hospitality. Realizing these benefits requires a well-thought-out integration plan.

Best Practice:

Create a detailed integration plan that outlines how the businesses will combine operations, staff, technology systems, and branding. Ensure that the acquired entity can leverage synergies such as shared marketing strategies, consolidated vendors, or centralized booking systems to drive efficiency and profitability.

Assess Cultural Fit

Customer service is paramount in the hospitality industry, and company culture plays a significant role in delivering exceptional guest experiences. Merging two companies with different corporate cultures can create friction that negatively impacts both employees and customers.

Best Practice:

Evaluate the cultural fit between the two businesses as part of your due diligence. Consider how values, employee management styles, employee benefits and customer service philosophies align. If there are differences, plan for how to integrate or preserve certain cultural aspects to maintain continuity for both staff and guests.

Focus on Financial Planning

Proper financial planning is essential during M&A, especially in the hospitality industry, which operates on tight margins and is highly leveraged. The acquisition cost, financing options, and ROI need careful consideration.

Best Practice:

Work closely with financial advisors to create a comprehensive budget that includes acquisition costs, transition expenses, and technology integration. This planning ensures the deal enhances long-term profitability rather than burdening the business financially.

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Explore Off-Peak Opportunities

Off-peak seasons can present favorable conditions for M&A. Not only do buyers have more time to integrate new assets, but sellers often desire a transaction when they are outside of the peak season to make sure it gets the time and attention needed. Coordinating a deal during this time allows both parties to focus on growth and expansion strategies without the pressure of peak-season demands.

Best Practice:

Consider pursuing deals during the off-peak season to allow for a smoother transition and adequate time for integration. This approach also ensures that any construction, upgrades, or system changes are completed before the next peak season.

Manage Employee and Customer Communications

Mergers and acquisitions can create uncertainty for both employees and customers. Employees may worry about job security or changes in management, while customers may be concerned about potential changes in service or quality. Clear communication is vital to avoid disruptions.

Best Practice:

Develop a comprehensive communication strategy to address both internal and external stakeholders. For employees, provide reassurance and transparency about changes to roles, compensation, or management structures. For customers, highlight the benefits of the merger or acquisition, such as enhanced services, improved facilities, or expanded offerings, to maintain their loyalty.

Comply with Regulatory Requirements

Mergers and acquisitions in the hospitality industry often involve multiple regulatory considerations, from health and safety codes to liquor licenses and zoning laws. Compliance with these regulations is essential for a smooth transition.

Best Practice:

Work closely with legal counsel and regulatory experts to make sure that all necessary approvals and licenses are transferred or obtained. This includes ensuring that food safety certifications, liquor licenses, and building permits are valid for the acquired entity and comply with local regulations.

Plan for the Transition Period

Even with the best-laid plans, the transition period following an M&A deal can be challenging. Operations must continue seamlessly during this time to maintain customer satisfaction and prevent disruptions.

Best Practice:

Establish a transition team dedicated to overseeing the integration of key business functions, such as front-of-house operations, supply chain management, and customer service. All stakeholders should have clear roles and responsibilities that will help keep the business running smoothly while the transaction is being implemented.

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Opportunity to Grow and Expand

Mergers and acquisitions offer exciting opportunities for businesses to grow and expand and an opportunity for those looking to get out of the industry to maximize the value of the business.

If you are interested in exploring M&A, contact SVA to learn more. Our experienced professionals understand the needs of the hospitality industry and can help guide you to the best options for your business.