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2
CoVenture Thesis
1
The US hotel industry, which peaked in 2007, has recovered from lows since the 2008 recession and
revenue has reached peak levels
3
Labor and customer acquisition costs have increased, and hotels must strive to find cost-cutting
methods in order to maintain margins
Revenue management has become an essential focus for hotel executives, and innovative techniques
such as upselling, technological services, and pricing analysis are booming2
4
Transactions have recovered since the slump in 2008, with an increased focus on lower-value, higher-
quantity deals
1 | The Hotel Industry
28.0 24.5
34.1 34.4
2007 2009 2011 2013
111.4 101.2 112.8
128.6
2007 2009 2011 2013
139.4 125.7
146.9 163.0
2007 2009 2011 2013
5.8
6.4 6.6 6.5
2007 2009 2011 2013
65.5
53.5 61.0 68.6
2007 2009 2011 2013
103.9
97.9
101.7
110.4
2007 2009 2011 2013
63%
55%
60%
62%
2007 2009 2011 2013
Hotel Industry Snapshot
Source: American Hotel and Lodging Association, Damodoran (NYU Stern), CoVenture Analysis
Profitability in the US hotel industry fell in 2009 due to the economic recession, but has since risen again as revenues
and consumer confidence increase
Percent
$US
$US
Millions
$US Billions
$US Billions
$US Billions
Occupancy Rate	

Average Daily Rate	

RevPAR	

Annual Bookings	

Total Revenue	

Pre-Tax Income	

Pre-Tax Expenses	

4
US Hotel Market Size
Source: American Hotel and Lodging Association, Damodoran (NYU Stern), CoVenture Analysis
6
Industry Revenue
$US Billions
139 141
126
134
147
156
163
171
2007 2008 2009 2010 2011 2012 2013 2014
+6.4% p.a.
Total Industry Revenue
The US hotel industry peaked in
performance in 2007-2008, but as a
result of the great recession, shrank
considerably in 2009.
Since then, industry performance
has steadily risen at a growth rate of
6.4% per annum to an estimated
$171 billion in 2014, exceeding pre-
recessionary peak levels of $140
billion.
As a result, major players in the
industry have grown in capital, with
the largest company valued at $22
billion market capitalization.
Industry Overview
Estimated
Source: American Hotel and Lodging Association, CoVenture Analysis
7
Key Performance Drivers
Occupancy Rate
Average Daily Rate
Revenue Per Available Room63.1%
54.7%
60.0%
62.2%
2007 2009 2011 2013
Percent
103.9
97.9
101.7
110.4
2007 2009 2011 2013
$US
•  During the recession, average
occupancy rate fell
significantly as travelling
declined
•  Since lows of 2009, consumer
travel has recovered and
occupancy rates have nearly
reached 2007 highs
•  Average daily rate also fell
during the recession as daily
spend on hotel amenities
decreased
•  ADR has since rebounded
and reached all-time highs of
$110.4 in 2013
$US
65.5
53.5
61.0
68.6
2007 2009 2011 2013
+6.6%	
  p.a.	
  
CAGR
+6.7% p.a.
+6.2% p.a.
6.8% 6.1%
•  RevPAR has thus recovered at a blistering
rate since 2009, exceeding pre-recessionary
levels
Source: American Hotel and Lodging Association, CoVenture Analysis
8
Impact of Lodging Alternatives on Annual Bookings
Total Room Rentals per Year
Millions
5.83
5.97
6.43 6.48
6.60 6.54 6.51 6.48
2007 2008 2009 2010 2011 2012 2013 2014
-0.6% p.a.
US Annual Bookings
Insights
Peer-to-Peer Rental Competitors
Since the launch of airbnb, P2P
rental space companies have grown
rapidly in size and number. This has
recently impacted the number of
annual bookings, which has fallen
since 2011. In New York City,
where there are approximately
100,000 hotel rooms, airbnb has
around 30,000 listings, nearly an
increase of a third of the market
size.
P2P renting primarily impact low-
end hotels with affordable rates and
a lack of amenities. There is
currently less of an impact in high-
end hotels because they typically
offer services such as conference
rooms that airbnb rentals are unable
to provide.
Lodging alternatives present challenges to conventional hotel sales models, and further pressure hotels into adapting
new revenue management techniques
Source: eMarketer, CoVenture Analysis
Increasing Popularity of Mobile Booking
Smartphone Bookers
Insights
As Americans’ propensity to book
travel online overall increases, so
too will their inclination to book via
mobile devices.
By 2016, there will be a predicted 36
million annual bookings through
mobile devices, up 22% per year
from 2013 levels.
Mobile booking will naturally
increase popularity in other mobile
hotel applications. These include
guest service technologies and hotel
rating and review software.
Annual Hotel Bookings by Mobile Devices in the US
Millions
8
12
16
20
25
30
36
2010 2011 2012 2013 2014 2015 2016
+22% p.a.
As mobile booking becomes increasingly prominent, mobile support for other services will rise in popularity and
importance
8
Source: Expert Interviews, Cornell University Website
10
Revenue Management
Revenue management is about selling the right room, to the
right customer, at the right time, for the right price. In the past,
the revenue manager focused on selling large blocks of rooms
at a group deal rate, as well as make deals with large
corporations for the travelling businessman to guarantee
higher occupancy and subsequently higher revenue. While
those two groups are still important, with the evolution in
technology, revenue managers have many more tools at their
disposure, and the leisure travel demographic has grown in
focus.
New techniques for revenue management include Online
Travel Agencies, Opaque Booking Channels, Last-Minute
Booking Sites/Apps, data aggregators that recommend optimal
prices for rooms, upsell technology and many more.
Overview Industry Expert Insights
Revenue management is becoming an increasingly essential focus for hospitality executives to maintain high
margins
“The most important area that hotels are focusing on
right now is revenue management. The key in revenue
management is understanding how to price rooms to
maximize revenue.”
-  Founder and CEO
Chartres Lodging Group
“The revenue management function will become more
central to hotel operations … the application of revenue
management will become more strategic … as it
includes more of hotels’ income streams.”
-  Dr. Sheryl Kimes
Cornell University School of Hotel Administration
Source: CoVenture Analysis
11
Revenue Management Techniques
Example Companies CommentsMethod
Flash Sale
Applications
•  Heavily discount rooms for same-day
sales, allowing hotels to more easily
fill up last-minute occupancy
•  Loosens pressure of having to sell
discounted rooms on OBCs
Online Travel
Agencies (OTA)
•  Serve as a great medium for hotels to
increase their scope and overall
revenue
•  Many OTAs are pricey, decreasing
hotel margins and increasing
customer acquisition costs
Opaque Booking
Channels (OBC)
•  Show price, number of stars, and
general location of a hotel but not its
name
•  Have not maintained strong growth
over the past two years
IncreasinginPopularity
As technology
improves,
traditional OTA
and OBC methods
are gradually
becoming replaced
by last-call flash
sale applications
Note: Revenue figures are estimates.
Source: Company Websites, CapitalIQ, MatterMark, Crunchbase, CoVenture Analysis
12
Ventures in Revenue Management
Company
Financials
$US Millions Business Focus Highlights
Nor1 Revenue: N/A
Funding: $29m
•  Upselling •  Risk-free upselling to the customer allows for higher
average spend and RevPAR
•  Mobile support for products
•  Wide range of corporate partners in hospitality
industry
1
Duetto Revenue: N/A
Funding: $33m
•  Pricing analysis •  Revenue analysis and management solutions based
on historical and competitor data
•  Supports separation of gaming and non-gaming
revenues for casino-based hotels
2
Intelity Revenue: $5m
Funding: N/A
•  Guest service
technology
•  Guest service replacement with digital technology
•  Compatible with wide range of technical devices
•  Prominent technical partners including Samsung and
wide range of corporate clients
3
Sources: Company Website, CapitalIQ, MatterMark, Crunchbase
13
Case Study: Nor1
Background Information Business Overview
Location and HQ United States, Europe, Asia; Headquartered in
Santa Clara, CA
Employees 98
Investors •  Data-driven pricing and solutions to increase RevPAR and guest
satisfaction
•  After booking, customers will be offered room upgrades (i.e.
views, suites, etc.) at a discount
•  Upgrade awarded if available at check-in, otherwise customer
package is unchanged
•  Results in 32% average increase in booking value, 1-5% increase
in ADR
•  Mobile support with eReach
Description
Products
Corporate Partners
Global company with institutional investment from major equity
funds
Results-driven products with wide range of corporate partners in
the hospitality industry
Management Team
Past Experience
Art Norins
Founder/
Chairman
•  Founder and chairman of Sandium, a
B2B air ventilation system supplier
Jason Bryant
Founder/CEO
•  Founder of DRCI, a world-class
offshore software developer
•  Speaker, World Travel Market
Ravneet Bhandari
CCO
•  Executive Consultant, Starwood
Capital Group
•  SVP, Trump Entertainment
Sources: Company Website, CapitalIQ, MatterMark, Crunchbase
14
Case Study: Duetto
Background Information Business Overview
Location and HQ United States; Headquartered in San
Francisco, CA
Employees 40
Investors
•  Cloud-based application providing revenue strategy solutions to
hotels and casinos
•  Analyzes both historical client data and competitor sales data to
generate all-around insights
•  Duetto Edge delivers insights on pricing and demand
•  Duetto Insight forecasts demand and optimizes pricing for
focused-service properties
•  GameChanger determines total value of each guest by gaming
and non-gaming revenue potential
Description
Products
Past Projects
US start-up with sizable workforce and impressive venture
capital backing
Revenue analysis solution suitable for gaming-focused hotel
chains and regional boutiques
Management Team
Past Experience
Patrick
Bosworth
Founder/CEO
•  Director, ELIOSUR
•  Director, Wynn Las Vegas
•  MBA, Harvard Business School
Marco
Benvenuti
Founder/CPO
•  Executive Director, Wynn and Encore
•  Founder, Enterprise Strategy Group
Craig
Weissman
Founder/CTO
•  CTO, Salesforce.com
•  MSc Computer Science, Harvard
University
Sources: Company Website, CapitalIQ, MatterMark, Crunchbase
15
Case Study: Intelity
Background Information Business Overview
Management Team
Location and HQ United States, United Kingdoms;
Headquartered in Orlando, FL
Employees 10
Founding
•  Online platform for integrating all digital guest services for hotels
•  Supports panel, TV, tablet, phone, and laptop
•  Results in 18% higher in-room dining orders, 8% hotel restaurant
reservation, 80% guest service efficiency, 4% golf and spa
revenues, 22% direct marketing revenue, and 7% Internet revenue
•  Also increases average savings of 75%-90% on in-room printed
materials
Description
Corporate Partners
Small-sized start-up with primary operations in the US and UK
Diverse range of technical partners and established corporate
clients
Technical Partners
2007
Revenue (LTM) $5 million
Past Experience
David Adelson
Founder/CEO
•  Director of Sales and Marketing,
Peabody Orlando; Grand Hyatt New
York
Chris Grey
CTO
•  CTO, Tribune Media Orlando
•  Commodities Corporation
•  Credit Suisse
Didier Jupillat
CFO
•  CFO, Florida Tree Source
•  MBA, ESSEC; Wharton School
Source: IBISWorld, Damodoran (NYU Stern), CoVenture Analysis
16
Hotel Industry Cost Breakdown
2009 Cost
Percent
2014 Cost
Percent Activities
Growth
Percent
Wages
COGS
Depreciation
Marketing
Rent & Utilities
Other
Total 83
2.5
7.6
2.0
6.5
38
26
While costs have decreased as a whole, margins are still thin and increasing costs in marketing and wages must be
addressed.
•  Front desk, concierge workers
•  Back-of-house activities
•  Bedding and room supplies
•  Meals and liquor
•  Capital investments on room fixtures
and fittings, and restaurant equipment
•  Customer acquisition costs
•  Booking and internet fees
•  REITs and falling ownership of buildings
•  Franchising fees, booking and internet
fees, insurance, printing, and motor
vehicle expenses
-3.1%
Decrease
Increase
+36%
86
2.5
9.2
1.5
6.8
40
25
N/A
+4.1%
-17%
-4.8%
-5.7%
Minimum Wage Costs in Hotel Industry
Source: Mercer Consulting, White House
17
Share of Minimum Wage Workers
Percent
37%
26%
12%
5%
5%
Hospitality and Leisure
Wholesale and Retailing
Education and Health Services
Professional and Business Services
Other Services
In March 2014, President Obama
called on Congress to raise the
national minimum wage from $7.25
to $10.10 an hour over the course of
a two year period in the form of the
Minimum Wage Fairness Act.
The US senate debated the
Minimum Wage Fairness Act in
April 2014, with strong support
from Obama and the Democratic
Senators and strong opposition
from Republicans.
The hospitality sector has the
highest share of minimum wage
workers in the US, which means
that an increase in minimum wage
would have a major impact on hotel
margins, which are already razor-
thin.
Top Five Sectors with Leading Share of Minimum Wage Workers
Insights
Source: Mercer Consulting
18
Impact of Obamacare on Costs
46%
40%
33%
32%
31%
Retail and Hospitality
Health Care Services
Manufacturing
Financial Services
Transporation/Utility
Obamacare presents further
unknown costs on hotels, as they
will now have to provide health care
to employees or pay a penalty,
significantly increasing labor costs.
A study by Mercer found that
employers in the hospitality sector
expect the Patient Protection and
Affordable Care Act (PPACA) to
affect them more than employers in
other industries. Nearly half expect
at least a 3% increase in costs as a
result of PPACA.
Hospitality employers typically
employ more lower-paid workers,
meaning that they will be more
affected by key provisions in the
PPACA set to take effect in 2014.
Cost Impact of Patient Protection and Affordable Care Act
Insights
Expected Cost Increase of 3% or More Due to PPACA Requirements in 2014
Percent
Source: Kalibri Labs & STR. 2013 Hama Study
19
Customer Acquisition Costs
Acquisition and Retention Expenses Revenue and Acquisition Costs
Percent of 2009
Customer acquisition costs are rising at a faster rate than hotel revenue; Outsourcing marketing initiatives to third-
party vendors will be necessary to improve margins
111
92
117
2007 2009 2012
Total Room Revenue
$US Billions
Acquisition Costs
$US Billions
9
16 19
2007 2009 2012
+c28%
+c1.8%
8%
15%
23%
16%
23%
36%
2009 2010 2011 2012
Acquisition Costs Commissions
2 | Transaction Activity
Venture capital and
IPO boom
Resurgence of leveraged
buyouts and
mega-buyouts
Increasing prominence of
internet hotel
ventures
2.1 1.3 0.3 0.3
4.6
12
14
11
4.7 3.9 3.9
8.1
37
19
51 52
5.1
8.4
19
25 24
27
12
<1990 1990 1993 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Notes: 1. Transactions include closed M&A, public offerings, and private placements; 2. Transactions for 2014 up to August 9th, 2014.
Source: CapitalIQ
21
Private and Market Activity
Closed Transaction Value
$US Billions
Total Deal Volume
Transaction value and frequency peaked in pre-recessionary years of 2006-2007 and fell significantly in 2008, but
has been rising steadily since then at a lower volume per deal
Value
Number
Notes: 1. Transactions include closed M&A, public offerings, and private placements from 1984 to 2014; 2. Transactions for 2014 up to August 9th, 2014.
Source: CapitalIQ
22
Largest Buyers and Investors
Top 10 Buyers by Number of Transactions Top 10 Buyers by Transaction Value
Transactions $US Billions
Financial investors (especially private equity firms) contribute to majority of transaction number and values, while
major hotel chains side towards high-value, low-count strategic transactions
Strategic
Financial
60
39
37
34
33
32
31
30
28
25
43
29
28
28
14
8.3
8.0
8.0
5.3
4.3
Note: Years 2011-2015 include transactions up to August 9th, 2014.
Source: CapitalIQ
23
Shift in Transaction Focus
Transaction Type
Insights
Deal volume for both securities
offerings and acquisitions have
increased substantially since before
1995.
Securities offerings rose during the
venture capital and IPO boom of
1996-2000 and fell alongside the
market in 2001-2005, but has since
rallied and reached peak levels in
2011-2015.
Acquisition activity rose
dramatically between 1995 and
2006, and peaked in the early
2006-2010 years with the
resurgence of leveraged buyouts and
mega-buyouts. Deal volume has
since fallen to around $49 billion so
far in the years 2011-2015.
<1985
1986-1990
1991-1995
1996-2000
2001-2005
2006-2010
2011-2015
Private/Public Offering and Acquisition Volume
$US Billions
0.6
2.9
0.3
32
61
109
50
N/A
N/A
0.3
16
10
27
38
Offering
Acquisition
InterContinental
(1998)
$2.9b
Note: Transaction value in $US Billions, historical conversion rate.
Source: CapitalIQ
24
Select Major Transactions
1990-1995 1995-2000 2000-2005
Financial
Transactions
Strategic
Transactions
2005-2010 2010-2014
M&A IPO
Hilton
(1999)
$3.9b
Caesars Entertmnt
(1999)
$3.0b
Starwood Hotels
(2002)
$1.5b
Blackstone PE
(2004)
$3.1b
Blackstone RE
(2005)
$3.3b
Avis Budget Group
(2004)
$1.3b
Issuer/Acquirer
(Year)
$Value
Target
Blackstone PE
(2007)
$25.1b
Blackstone RE
(2010)
$3.9b
Hilton
(2013)
$2.4b
Fortis
(2013)
$1.4b
Priceline Group
(2012)
$1.8b
Blackstone RE
(2012)
$1.9b
Pinnacle Entertmnt
(2012)
$2.9b
TPG Capital
(2006)
$27.9b
Wimar Tahoe Corp
(2006)
$2.8b
Accor
(1990)
$1.3b
Aoki Corp
(1987)
$1.5b
FelCor Lodging
(1998)
$1.8b
InterActiveCorp
(2003)
$1.1b
Starwood
(1997)
$1.8b
Ali Hamed, CoVenture
Managing Partner
@alibhamed
Ali @ CoVenture.Us
Brian Harwitt, blh74@cornell.edu
Clark Zhang, cz254@cornell.edu

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Hospitality industry research report

  • 1.
  • 2. This deck is powered by information we retrieved from: With Mattermark’s permission ;)
  • 3. 2 CoVenture Thesis 1 The US hotel industry, which peaked in 2007, has recovered from lows since the 2008 recession and revenue has reached peak levels 3 Labor and customer acquisition costs have increased, and hotels must strive to find cost-cutting methods in order to maintain margins Revenue management has become an essential focus for hotel executives, and innovative techniques such as upselling, technological services, and pricing analysis are booming2 4 Transactions have recovered since the slump in 2008, with an increased focus on lower-value, higher- quantity deals
  • 4. 1 | The Hotel Industry
  • 5. 28.0 24.5 34.1 34.4 2007 2009 2011 2013 111.4 101.2 112.8 128.6 2007 2009 2011 2013 139.4 125.7 146.9 163.0 2007 2009 2011 2013 5.8 6.4 6.6 6.5 2007 2009 2011 2013 65.5 53.5 61.0 68.6 2007 2009 2011 2013 103.9 97.9 101.7 110.4 2007 2009 2011 2013 63% 55% 60% 62% 2007 2009 2011 2013 Hotel Industry Snapshot Source: American Hotel and Lodging Association, Damodoran (NYU Stern), CoVenture Analysis Profitability in the US hotel industry fell in 2009 due to the economic recession, but has since risen again as revenues and consumer confidence increase Percent $US $US Millions $US Billions $US Billions $US Billions Occupancy Rate  Average Daily Rate  RevPAR  Annual Bookings  Total Revenue  Pre-Tax Income  Pre-Tax Expenses  4
  • 6. US Hotel Market Size Source: American Hotel and Lodging Association, Damodoran (NYU Stern), CoVenture Analysis 6 Industry Revenue $US Billions 139 141 126 134 147 156 163 171 2007 2008 2009 2010 2011 2012 2013 2014 +6.4% p.a. Total Industry Revenue The US hotel industry peaked in performance in 2007-2008, but as a result of the great recession, shrank considerably in 2009. Since then, industry performance has steadily risen at a growth rate of 6.4% per annum to an estimated $171 billion in 2014, exceeding pre- recessionary peak levels of $140 billion. As a result, major players in the industry have grown in capital, with the largest company valued at $22 billion market capitalization. Industry Overview Estimated
  • 7. Source: American Hotel and Lodging Association, CoVenture Analysis 7 Key Performance Drivers Occupancy Rate Average Daily Rate Revenue Per Available Room63.1% 54.7% 60.0% 62.2% 2007 2009 2011 2013 Percent 103.9 97.9 101.7 110.4 2007 2009 2011 2013 $US •  During the recession, average occupancy rate fell significantly as travelling declined •  Since lows of 2009, consumer travel has recovered and occupancy rates have nearly reached 2007 highs •  Average daily rate also fell during the recession as daily spend on hotel amenities decreased •  ADR has since rebounded and reached all-time highs of $110.4 in 2013 $US 65.5 53.5 61.0 68.6 2007 2009 2011 2013 +6.6%  p.a.   CAGR +6.7% p.a. +6.2% p.a. 6.8% 6.1% •  RevPAR has thus recovered at a blistering rate since 2009, exceeding pre-recessionary levels
  • 8. Source: American Hotel and Lodging Association, CoVenture Analysis 8 Impact of Lodging Alternatives on Annual Bookings Total Room Rentals per Year Millions 5.83 5.97 6.43 6.48 6.60 6.54 6.51 6.48 2007 2008 2009 2010 2011 2012 2013 2014 -0.6% p.a. US Annual Bookings Insights Peer-to-Peer Rental Competitors Since the launch of airbnb, P2P rental space companies have grown rapidly in size and number. This has recently impacted the number of annual bookings, which has fallen since 2011. In New York City, where there are approximately 100,000 hotel rooms, airbnb has around 30,000 listings, nearly an increase of a third of the market size. P2P renting primarily impact low- end hotels with affordable rates and a lack of amenities. There is currently less of an impact in high- end hotels because they typically offer services such as conference rooms that airbnb rentals are unable to provide. Lodging alternatives present challenges to conventional hotel sales models, and further pressure hotels into adapting new revenue management techniques
  • 9. Source: eMarketer, CoVenture Analysis Increasing Popularity of Mobile Booking Smartphone Bookers Insights As Americans’ propensity to book travel online overall increases, so too will their inclination to book via mobile devices. By 2016, there will be a predicted 36 million annual bookings through mobile devices, up 22% per year from 2013 levels. Mobile booking will naturally increase popularity in other mobile hotel applications. These include guest service technologies and hotel rating and review software. Annual Hotel Bookings by Mobile Devices in the US Millions 8 12 16 20 25 30 36 2010 2011 2012 2013 2014 2015 2016 +22% p.a. As mobile booking becomes increasingly prominent, mobile support for other services will rise in popularity and importance 8
  • 10. Source: Expert Interviews, Cornell University Website 10 Revenue Management Revenue management is about selling the right room, to the right customer, at the right time, for the right price. In the past, the revenue manager focused on selling large blocks of rooms at a group deal rate, as well as make deals with large corporations for the travelling businessman to guarantee higher occupancy and subsequently higher revenue. While those two groups are still important, with the evolution in technology, revenue managers have many more tools at their disposure, and the leisure travel demographic has grown in focus. New techniques for revenue management include Online Travel Agencies, Opaque Booking Channels, Last-Minute Booking Sites/Apps, data aggregators that recommend optimal prices for rooms, upsell technology and many more. Overview Industry Expert Insights Revenue management is becoming an increasingly essential focus for hospitality executives to maintain high margins “The most important area that hotels are focusing on right now is revenue management. The key in revenue management is understanding how to price rooms to maximize revenue.” -  Founder and CEO Chartres Lodging Group “The revenue management function will become more central to hotel operations … the application of revenue management will become more strategic … as it includes more of hotels’ income streams.” -  Dr. Sheryl Kimes Cornell University School of Hotel Administration
  • 11. Source: CoVenture Analysis 11 Revenue Management Techniques Example Companies CommentsMethod Flash Sale Applications •  Heavily discount rooms for same-day sales, allowing hotels to more easily fill up last-minute occupancy •  Loosens pressure of having to sell discounted rooms on OBCs Online Travel Agencies (OTA) •  Serve as a great medium for hotels to increase their scope and overall revenue •  Many OTAs are pricey, decreasing hotel margins and increasing customer acquisition costs Opaque Booking Channels (OBC) •  Show price, number of stars, and general location of a hotel but not its name •  Have not maintained strong growth over the past two years IncreasinginPopularity As technology improves, traditional OTA and OBC methods are gradually becoming replaced by last-call flash sale applications
  • 12. Note: Revenue figures are estimates. Source: Company Websites, CapitalIQ, MatterMark, Crunchbase, CoVenture Analysis 12 Ventures in Revenue Management Company Financials $US Millions Business Focus Highlights Nor1 Revenue: N/A Funding: $29m •  Upselling •  Risk-free upselling to the customer allows for higher average spend and RevPAR •  Mobile support for products •  Wide range of corporate partners in hospitality industry 1 Duetto Revenue: N/A Funding: $33m •  Pricing analysis •  Revenue analysis and management solutions based on historical and competitor data •  Supports separation of gaming and non-gaming revenues for casino-based hotels 2 Intelity Revenue: $5m Funding: N/A •  Guest service technology •  Guest service replacement with digital technology •  Compatible with wide range of technical devices •  Prominent technical partners including Samsung and wide range of corporate clients 3
  • 13. Sources: Company Website, CapitalIQ, MatterMark, Crunchbase 13 Case Study: Nor1 Background Information Business Overview Location and HQ United States, Europe, Asia; Headquartered in Santa Clara, CA Employees 98 Investors •  Data-driven pricing and solutions to increase RevPAR and guest satisfaction •  After booking, customers will be offered room upgrades (i.e. views, suites, etc.) at a discount •  Upgrade awarded if available at check-in, otherwise customer package is unchanged •  Results in 32% average increase in booking value, 1-5% increase in ADR •  Mobile support with eReach Description Products Corporate Partners Global company with institutional investment from major equity funds Results-driven products with wide range of corporate partners in the hospitality industry Management Team Past Experience Art Norins Founder/ Chairman •  Founder and chairman of Sandium, a B2B air ventilation system supplier Jason Bryant Founder/CEO •  Founder of DRCI, a world-class offshore software developer •  Speaker, World Travel Market Ravneet Bhandari CCO •  Executive Consultant, Starwood Capital Group •  SVP, Trump Entertainment
  • 14. Sources: Company Website, CapitalIQ, MatterMark, Crunchbase 14 Case Study: Duetto Background Information Business Overview Location and HQ United States; Headquartered in San Francisco, CA Employees 40 Investors •  Cloud-based application providing revenue strategy solutions to hotels and casinos •  Analyzes both historical client data and competitor sales data to generate all-around insights •  Duetto Edge delivers insights on pricing and demand •  Duetto Insight forecasts demand and optimizes pricing for focused-service properties •  GameChanger determines total value of each guest by gaming and non-gaming revenue potential Description Products Past Projects US start-up with sizable workforce and impressive venture capital backing Revenue analysis solution suitable for gaming-focused hotel chains and regional boutiques Management Team Past Experience Patrick Bosworth Founder/CEO •  Director, ELIOSUR •  Director, Wynn Las Vegas •  MBA, Harvard Business School Marco Benvenuti Founder/CPO •  Executive Director, Wynn and Encore •  Founder, Enterprise Strategy Group Craig Weissman Founder/CTO •  CTO, Salesforce.com •  MSc Computer Science, Harvard University
  • 15. Sources: Company Website, CapitalIQ, MatterMark, Crunchbase 15 Case Study: Intelity Background Information Business Overview Management Team Location and HQ United States, United Kingdoms; Headquartered in Orlando, FL Employees 10 Founding •  Online platform for integrating all digital guest services for hotels •  Supports panel, TV, tablet, phone, and laptop •  Results in 18% higher in-room dining orders, 8% hotel restaurant reservation, 80% guest service efficiency, 4% golf and spa revenues, 22% direct marketing revenue, and 7% Internet revenue •  Also increases average savings of 75%-90% on in-room printed materials Description Corporate Partners Small-sized start-up with primary operations in the US and UK Diverse range of technical partners and established corporate clients Technical Partners 2007 Revenue (LTM) $5 million Past Experience David Adelson Founder/CEO •  Director of Sales and Marketing, Peabody Orlando; Grand Hyatt New York Chris Grey CTO •  CTO, Tribune Media Orlando •  Commodities Corporation •  Credit Suisse Didier Jupillat CFO •  CFO, Florida Tree Source •  MBA, ESSEC; Wharton School
  • 16. Source: IBISWorld, Damodoran (NYU Stern), CoVenture Analysis 16 Hotel Industry Cost Breakdown 2009 Cost Percent 2014 Cost Percent Activities Growth Percent Wages COGS Depreciation Marketing Rent & Utilities Other Total 83 2.5 7.6 2.0 6.5 38 26 While costs have decreased as a whole, margins are still thin and increasing costs in marketing and wages must be addressed. •  Front desk, concierge workers •  Back-of-house activities •  Bedding and room supplies •  Meals and liquor •  Capital investments on room fixtures and fittings, and restaurant equipment •  Customer acquisition costs •  Booking and internet fees •  REITs and falling ownership of buildings •  Franchising fees, booking and internet fees, insurance, printing, and motor vehicle expenses -3.1% Decrease Increase +36% 86 2.5 9.2 1.5 6.8 40 25 N/A +4.1% -17% -4.8% -5.7%
  • 17. Minimum Wage Costs in Hotel Industry Source: Mercer Consulting, White House 17 Share of Minimum Wage Workers Percent 37% 26% 12% 5% 5% Hospitality and Leisure Wholesale and Retailing Education and Health Services Professional and Business Services Other Services In March 2014, President Obama called on Congress to raise the national minimum wage from $7.25 to $10.10 an hour over the course of a two year period in the form of the Minimum Wage Fairness Act. The US senate debated the Minimum Wage Fairness Act in April 2014, with strong support from Obama and the Democratic Senators and strong opposition from Republicans. The hospitality sector has the highest share of minimum wage workers in the US, which means that an increase in minimum wage would have a major impact on hotel margins, which are already razor- thin. Top Five Sectors with Leading Share of Minimum Wage Workers Insights
  • 18. Source: Mercer Consulting 18 Impact of Obamacare on Costs 46% 40% 33% 32% 31% Retail and Hospitality Health Care Services Manufacturing Financial Services Transporation/Utility Obamacare presents further unknown costs on hotels, as they will now have to provide health care to employees or pay a penalty, significantly increasing labor costs. A study by Mercer found that employers in the hospitality sector expect the Patient Protection and Affordable Care Act (PPACA) to affect them more than employers in other industries. Nearly half expect at least a 3% increase in costs as a result of PPACA. Hospitality employers typically employ more lower-paid workers, meaning that they will be more affected by key provisions in the PPACA set to take effect in 2014. Cost Impact of Patient Protection and Affordable Care Act Insights Expected Cost Increase of 3% or More Due to PPACA Requirements in 2014 Percent
  • 19. Source: Kalibri Labs & STR. 2013 Hama Study 19 Customer Acquisition Costs Acquisition and Retention Expenses Revenue and Acquisition Costs Percent of 2009 Customer acquisition costs are rising at a faster rate than hotel revenue; Outsourcing marketing initiatives to third- party vendors will be necessary to improve margins 111 92 117 2007 2009 2012 Total Room Revenue $US Billions Acquisition Costs $US Billions 9 16 19 2007 2009 2012 +c28% +c1.8% 8% 15% 23% 16% 23% 36% 2009 2010 2011 2012 Acquisition Costs Commissions
  • 20. 2 | Transaction Activity
  • 21. Venture capital and IPO boom Resurgence of leveraged buyouts and mega-buyouts Increasing prominence of internet hotel ventures 2.1 1.3 0.3 0.3 4.6 12 14 11 4.7 3.9 3.9 8.1 37 19 51 52 5.1 8.4 19 25 24 27 12 <1990 1990 1993 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Notes: 1. Transactions include closed M&A, public offerings, and private placements; 2. Transactions for 2014 up to August 9th, 2014. Source: CapitalIQ 21 Private and Market Activity Closed Transaction Value $US Billions Total Deal Volume Transaction value and frequency peaked in pre-recessionary years of 2006-2007 and fell significantly in 2008, but has been rising steadily since then at a lower volume per deal Value Number
  • 22. Notes: 1. Transactions include closed M&A, public offerings, and private placements from 1984 to 2014; 2. Transactions for 2014 up to August 9th, 2014. Source: CapitalIQ 22 Largest Buyers and Investors Top 10 Buyers by Number of Transactions Top 10 Buyers by Transaction Value Transactions $US Billions Financial investors (especially private equity firms) contribute to majority of transaction number and values, while major hotel chains side towards high-value, low-count strategic transactions Strategic Financial 60 39 37 34 33 32 31 30 28 25 43 29 28 28 14 8.3 8.0 8.0 5.3 4.3
  • 23. Note: Years 2011-2015 include transactions up to August 9th, 2014. Source: CapitalIQ 23 Shift in Transaction Focus Transaction Type Insights Deal volume for both securities offerings and acquisitions have increased substantially since before 1995. Securities offerings rose during the venture capital and IPO boom of 1996-2000 and fell alongside the market in 2001-2005, but has since rallied and reached peak levels in 2011-2015. Acquisition activity rose dramatically between 1995 and 2006, and peaked in the early 2006-2010 years with the resurgence of leveraged buyouts and mega-buyouts. Deal volume has since fallen to around $49 billion so far in the years 2011-2015. <1985 1986-1990 1991-1995 1996-2000 2001-2005 2006-2010 2011-2015 Private/Public Offering and Acquisition Volume $US Billions 0.6 2.9 0.3 32 61 109 50 N/A N/A 0.3 16 10 27 38 Offering Acquisition
  • 24. InterContinental (1998) $2.9b Note: Transaction value in $US Billions, historical conversion rate. Source: CapitalIQ 24 Select Major Transactions 1990-1995 1995-2000 2000-2005 Financial Transactions Strategic Transactions 2005-2010 2010-2014 M&A IPO Hilton (1999) $3.9b Caesars Entertmnt (1999) $3.0b Starwood Hotels (2002) $1.5b Blackstone PE (2004) $3.1b Blackstone RE (2005) $3.3b Avis Budget Group (2004) $1.3b Issuer/Acquirer (Year) $Value Target Blackstone PE (2007) $25.1b Blackstone RE (2010) $3.9b Hilton (2013) $2.4b Fortis (2013) $1.4b Priceline Group (2012) $1.8b Blackstone RE (2012) $1.9b Pinnacle Entertmnt (2012) $2.9b TPG Capital (2006) $27.9b Wimar Tahoe Corp (2006) $2.8b Accor (1990) $1.3b Aoki Corp (1987) $1.5b FelCor Lodging (1998) $1.8b InterActiveCorp (2003) $1.1b Starwood (1997) $1.8b
  • 25. Ali Hamed, CoVenture Managing Partner @alibhamed Ali @ CoVenture.Us Brian Harwitt, blh74@cornell.edu Clark Zhang, cz254@cornell.edu