Author : Suzanne
Dubai: Investors, who chose to stay away from the hospitality sector since October 2008, are now exploring private equity deals in the region, according to market trackers.
Investors – foreign and domestic – faced with liquidity woes are, however, not rushing in to the deals but are rather playing a wait and watch game as far as mergers and acquisitions are concerned.
"Many investors have started to explore deals – Dubai in particular and the Middle East in general. Though financing still remain a problem, we hope that once that is sorted out, deals will start happening," Charbel Boutros, Manager, Mergers and Acquisitions, Roya International, a consulting and services firm specialising in hospitality, told Emirates Business.
According to analysts, this could be the first sign of recovery. "Deals had frozen by the end of 2008 but starting January the situation has improved," added Boutros.
But it will take some time before actual deals begin to take place as investors are taking their time to explore at the moment, according to industry experts.
"Investors are waiting for right valuations and they are unsure if that [current valuation] has hit a nadir or will go down further. But the interesting thing is, investors who were not even considering deals in this region have now at least started to explore," said Ahmed Ramdan, Chief Executive Officer, Roya International.
Faced with an oversupply and a decline in revenues, the hospitality industry is hunting for new alternatives to save costs. One of the top four global consultants, Deloitte, yesterday entered an agreement with Roya International whereby it would provide hotel management oversight (HMO) services in the Middle East.
Some of the HMO functions include monitoring ongoing financial performance, evaluating the sales and marketing process and reviewing the budgeting process.
"HMO is designed to play a critical role in supporting the achievement of planned returns and the enhancement of business values," said Firas Eid, Partner Consulting at Deloitte & Touche (ME). The HMO service is targeted at investors, hotel owners, operators and government entities.
By utilising research tools and consultancy skills, the HMO services team will deliver services in a structured manner addressing the increased need of hotel owners and operators in the region, said Eid. "The scope for HMO in the Middle East is enormous especially with many new hotels coming up in the region," he added.
The number of hotels going in for asset management advisors has increased in the recent times due to the current situation the hospitality industry is in, according to Roya International's Ramdan.
The analysts further pointed out that while Dubai is by far still the biggest player in the Middle East hospitality industry, Oman is the place where most hospitality companies are betting.
"While many countries like the UAE, Egypt, Saudi Arabia and Qatar will grow at a fast pace, Oman has a huge scope for hospitality players. Iraq presently has few hotels and there could be good potential for growth if the situation in the country stabilises," said Ramdan.
When asked if hotels are going in for retrenchment as a simple policy for reducing costs, he said: "It is not that simple, as the hotels cannot risk to reduce their services, whatever their occupancy rates, and hence they will need people for providing those services.
"The best way is to control costs and in one of a five-star hotels [client] we discovered that the company's energy consumption cost can be halved, thus save cost and increase revenue."
Outsourcing is another cost-cutting solution that, according to Ramdan, the hotel industry can look into as it saves a lot of cost.
"Outsourcing engineering work, security and jobs such as painting can be outsourced without actually affecting the hotel's efficiency. This will reduce the costs majorly," he said.
"We have worked with more than 200 clients in the region and expect that HMO will become even more important as maintaining healthy cost sheets has become a priority in the sector," said Eid.
Source : Emirates Business 24|7
