Premier Inn to Expand Budget Hotel Empire in Germany Through Acquisitions

Premier Inn, the UK’s largest hotel chain, wants to expand its budget brand in the larger German market — partly through mergers and acquisitions.

“The strength of our balance sheet means we also have the flexibility to purchase attractive freeholds and execute bolt-on M&A [mergers and acquisitions] in Germany,” said Hemant Patel, chief financial officer of parent company Whitbread during an earnings call on Tuesday. “Our strategy in Germany is clear: to reach scale, replicate our UK model, and deliver attractive rates of return.”

On March 2, Premier Inn acquired six hotels with about 900 rooms in Germany that it’s refurbishing and converting to its brand. That deal brings its total open hotels in Germany to 51 — equal to about 9,000 rooms.

Vicki Stern, an analyst at Barclays Research, forecast in a report that Premier Inn’s mergers and acquisitions in Germany will be “bolt-on” and “not large deals.”

The company’s executives said they plan in the next year to add between 1,000 to 1,500 rooms in Germany, nearly as many as the 1,500 and 2,000 rooms it plans to add in the UK. It said it had a multi-year development pipeline of about 5,000 additional rooms in Germany.

“Germany is 40 percent bigger than the UK,” said CEO Dominic Paul. “RevPAR [revenue per available room] growth has been higher than the UK [in the pre-pandemic period]. There are fewer real estate investment trusts, meaning that owner-operators like Premier Inn are better placed to expand to acquiring, leasing, converting, or building new hotels. There is scope for M&A.”

The budget brand has had to adjust its operations for the German market, such as by offering more continental breakfast choices with more meats and cheese, adding a second duvet on beds, and expanding the locally-preferred payment methods it accepts.

Executives see a large opportunity in Germany because of the struggle many independent hotel owners face. Since 2019, the number of independently run rooms as a percentage of the total hotel market in Germany fell by 5 percentage points.

Stern at Barclays noted that the German hotel market had been slow to recover from the pandemic but that there are signs of improvement. “Our channel checks signal a recovery,” she wrote.

Premier Inn’s biggest branded competitors in Germany are Ibis (24,000 rooms), B&B (17,000 rooms), Motel One (17,000 rooms), and Best Western (16,000 rooms).

UK-based Whitbread, which also owns food-and-beverage outlets, produced a profit after tax of $347 million (£279 million) on $3.2 billion (£2.6 billion) in revenue for the 52 weeks ending March 2. The revenue was 27 percent above pre-pandemic levels, thanks partly to record occupancy levels.

The company ended March 2 with a net cash position at the year-end of $212 million (£171 million) despite last year’s inflation, brand-wide property refurbishments, and the opening of about 4,000 rooms. It announced on Tuesday a $372 million (£300 million) stock buyback plan based on free cash flow. It expects to have enough leftover free cash flow to help fuel growth in Germany.

Premier Inn said its scale enabled it to better defend against inflation in the UK and Germany through volume buying and by providing more competitive rates because of its guest book directly thanks to its brand recognition, skipping online travel agents that add middleman distribution costs to owners.

“Now that government support has ended, and with rising inflation and interest rates, we expect that the independent hotel sector in Germany will remain under pressure, creating further opportunities for market share gains,” Paul said.