And then there were none.
Brazil is for sale, and in some cases to the lowest bidder. The publicly traded Brazil Hospitality Group, once majority owned by mid-sized private equity firm GP Investments out of São Paulo, was acquired by New York's GTIS Partners on Thursday. The deal marks the death of the domestically controlled big branded hotel business.
For sure, BHG existed in the Jurassic Period of Brazilian travel and tourism. Controlled by a handful of individual Brazilian businessmen and -- for some reason -- government pension funds, the mass-market hotel business in Brazil has been struck by a fireball from the heavens. Most of it coming from Planet Europe and U.S.
While there are still many small, independently operated properties and luxury "pousadas" spread throughout the country -- particularly in tourist spots like Gramado in Rio Grande de Sul and along the outskirts of Rio -- if you're sleeping in a tower hotel in Brazil, it is probably foreign owned.
BHG doesn't operate at the high end of the hotel scale. It's more of a middle class and convention business. The Capital property in São Paulo is perhaps their more sophisticated brand. The most well known of Brazil's overnight stays will be the famed Copacabana Palace, of course. But this Rio de Janeiro hot spot for the A-List on Avenida Atlantica is owned and managed by the Belmond in London. Even one of Rio's premier designer travel firms, Dehouche, is run by a couple of ex-pats and not Brazilians. Perhaps it is true that most Brazilians do not see the lure of their country and prefer the bragging rights of family vacations to DisneyWorld, Las Vegas, or shopping at
The GP-GTIS deal was first announced in August 2014. The $400 million offer was sealed today. BHG is one Brazil’s largest hotel owners and one of the country’s leading hotel operators.
The deal gives GTIS Partners a roughly 70% stake in BHG, which will now delist from the Bovespa stock exchange. The shares were purchased from the market. BHG shares rose 37% since August 1 on news that a buyout was imminent. The remainder of the shares are still owned by GP Investments. They will remain partners with GTIS, which acquired the public shares from the market.
Travel and tourism aside, going private is an example of the current mid-market climate in Brazil, says GTIS President Tom Shapiro. “By taking advantage of the capital markets’ dislocation, we can acquire high-quality assets at substantial discounts,” he says.
By virtue of the deal, the New Yorkers now own and operate 52 hotels comprising 10,000 rooms, much of it concentrated in São Paulo and on Rio de Janeiro’s oceanfront. As it turns out, Rio is hosting the Summer Olympic Games next summer in Rio, which means GTIS' investment will be fully booked.
There is also an existing pipeline of new properties being built that will take the total numbers of room keys to 14,000 within two years.
The BHG transaction is the largest in GTIS’ history and is the third in a string of foreign deals announced in Brazil over the last month and a half.
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With the economy currently in the gutter, Brazil provides a unique combination of near-term distress coupled with medium to long-term boom opportunities for businesses in general. Josh Pristaw, Senior Managing Director and Co-Head of GTIS Brazil said in a statement that, “It is a very compelling time to have an established platform in Brazil and capital to allocate.”
GTIS is no stranger to Brazil's real estate market. But this is its first hotel buy. They've been analyzing the sector for the past four years, looking to take a permanent vacation in South America. GTIS and GP said they plan to renovate existing properties and take some select hotels up market.
Both are operating in a fairly lucrative and steady growth market.
The direct contribution of travel & tourism to Brazilian GDP was R$166.1 billion ($55.3 billion) in 2013, or 3.5% of total GDP. It was forecast to rise 3.0% in 2014 and average around 4% compound annual growth (CAGR) between 2014-2024, according to the World Travel and Tourism Council. Sector investment in 2013 was R$52 billion or 5.8% of total investment in Brazil. The Council forecast a 6.1% CAGR over the next 10 years to R$114.7 billion. Brazil is the largest travel and tourism market in Latin America, even surpassing that of Mexico.
