Mergers and Acquisitions in the Hospitality and Travel Industry

Résumé du document

Why is the strategy of external growth currently so widespread in the hospitality and travel industry ? Why do so many companies in this industry, in order to develop a competitive advantage, choose either vertical or horizontal integration ? What are the risks of mergers and acquisitions for the companies who actually experience this strategy ? On what conditions does the success of such an operation depend upon ? We will try to answer these questions by discussing the major advantages and disadvantages of the strategy of external growth in the hospitality and travel industry. The need for external growth and globalisation is currently widespread in thebusiness and travel industries. A lot of companies merger to grow and spread their business. Mergers

Extraits

[...] In this paper, we will deal with mergers, acquisitions and major shareholding as means of achieving external growth. The strategy of external growth consists either in vertical or in horizontal integration. A strategy of vertical integration means holding shares of, or acquiring, a company that operates at a different stage of the elaboration of the product (travel, hospitality, tour operating) or that distributes the product (travel agencies). Among the many operations of vertical integration that happened recently, here are some well-known examples : -From tour operating to distribution : Nouvelles Frontières has successfully integrated its own distribution network. [...]

[...] For example, when it bought Club Aquarius, Club Méditerranée had in mind their respective product positioning : Club Aquarius was indeed positioned on a lower segment of the market than Club Méditerrannée. When horizontal integration results in the creation of a chain, another advantage is that the chain effect strengthens the fidelity on the part of the customer. On the hospitality market, this effect will increase the number of nights paid to the hotel. Another major advantage of horizontal integration is that it allows a company to pursue its growth strategy when it is impossible to lead an internal growth strategy. [...]

[...] Disadvantages of the strategy of external growth First, what must be said at the very outset is that the strategy of mergers and acquisitions is indeed a very expensive one. In particular, as the size of companies is slowly growing through mergers, it is becoming very costly to achieve new ones. This goes a long way in explaining why airline companies tend to conclude partnerships and strategic alliances rather than mergers or acquisitions. Another major drawback of the strategy of external growth lays in the fact that it may be very difficult to integrate successfully two different companies with strong identities, coming from different cultural backgrounds. [...]

[...] Advantages of the strategy of mergers and acquisitions Vertical and horizontal integration differ in many ways. Roughly speaking, they do not have the same objectives and, therefore, have different advantages and disadvantages. Nevertheless, because both strategies are achieved through mergers or acquisitions, they do share some common characteristics. First, the strategy of external growth, as opposed to internal growth, may be seen as a quick alternative to the slow elaboration of new products. To be sure, such a strategy will lead to the “mechanical” growth of the company on the very short-term. [...]

[...] External growth operations won't happen on emerging markets. On the contrary, they will happen more frequently on mature or declining markets.” This is why so many operations of this kind are currently undertaken in the hospitality and travel industry. * * * Let us now discuss what kind of benefits can be awaited from the strategy of vertical integration. The first and most obvious one may be the greater independence the company obtains when it can control different stages of the elaboration of the same product. [...]