Accor, Europe's largest hotel group, has bought the owner of the Fairmont, Raffles and Swissotel hotel chains for $2.9bn in cash and shares, in the second major hotel takeover in a month.
Accor, which announced the deal for FRHI Hotels & Resorts on Wednesday, said that the purchase of 115 luxury hotels and resorts and a further 40 under development would create a "worldwide leader in the luxury segment".
The French group will pay Qatar Investment Authority and Prince Alwaleed bin Talal's Kingdom Holdings $840m in cash and 46.7m new shares. The two Middle Eastern investors will be among Accor's biggest shareholders, owning 10.5 per cent and 5.8 per cent of the company, respectively.
As part of the transaction, QIA will have two seats on Accor's board while KHC will take another, Accor said.
The deal comes as major hotel companies are chasing scale, and occupancy and room rates reach record highs, especially in the US. Revenue per available room, the industry metric, is already 13 per cent higher in the US than it was in 2007, the previous peak in the cycle. Last month, Marriott International bought Starwood Hotels and Resorts in a $12.2bn deal.
Sebastien Bazin, Accor's chairman and chief executive, said that he had never considered an all-cash deal because he wanted to carry out the acquisition without impairing the group's investment grade rating or interrupting its three-year reorganisation of the business.
Mr Bazin said he was also keen for the two investors to be involved with Accor. "Between Qatar Investment Authority and Saudi Prince Alwaleed, you have two of the five most sophisticated global luxury owners in the world," he told the Financial Times. "They have expertise and a track record. They want to continue the expansion through Accor equity ownership."
After the deal, Accor will have 500 luxury and high-end hotels, including the Savoy in London, the Plaza in New York and the Raffles hotel in Singapore.
Mr Bazin said that the acquisition would push the European hotel group deeper into the luxury sector, which has grown faster than the overall market in recent years and where margins are higher. "We have a true willingness to create what could be one of the three leaders in the luxury hotel space," he said.
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It will also broaden Accor's geographic reach. The deal will give Accor 42 properties in North America, providing a huge boost to its exposure to the region where it has only eight luxury properties, and 28 in Asia.
"It is truly an enormous step for us," Mr Bazin said. He also said that it would give the group an additional 3m loyalty cardholders. Accor has 27m, up from 7m five years ago.
Sarmad Zok, chief executive of Kingdom Hotel Investments, a subsidiary of Kingdom Holdings, said that the combination of Accor and Fairmont made "perfect strategic sense".
Fairmont and Raffles will benefit from the scale and distribution muscle of Accor's platform, he added.
More than a quarter of Accor's pre-tax profits came from France last year, where the market has been subdued, and 42 per cent from Europe in total.
Mr Zok said that the Paris attacks had had no impact on the deal.
"What happened in Paris is a global problem manifested in Paris; it doesn't change the long-term outlook on the industry or Accor," he said. "It wouldn't change the value creation of such a transaction — no way."
Accor predicted that it would generate roughly €65m in revenue and cost synergies from the deal by the third year.
Accor had the ability to do the deal in cash if it wished. At the end of the first half, the company had €2.8bn in cash and €1.8bn of unused debt facilities. Earlier this month, Accor announced the purchase of 29 hotels in Europe for €284m. The French company has nearly 3,800 hotels and runs the Sofitel, Pullman, Novotel and Ibis chains.