In recent months, Hersha Hospitality Management (HHM) entered into two merger and acquisition deals—the first and second in its nearly 40-year history—when it purchased 25 management contracts from White Lodging and signed an agreement to make Urgo Hotels & Resorts a wholly owned subsidiary.
Naveen P. Kakarla, president/CEO, HHM, told Hotel Business that each of the transactions brings something different to his company.
Naveen Kakarla Hersha Hospitality Management (HHM)
The White Lodging deal “allowed us to work with owners we were very excited about,” he said. “It allowed us to expand and grow with three REITs and a private equity group that is the top of the market. We already had a relationship with all four. It wasn’t really about growth as it was really strategic to expand with those owners—and the fact that we had the capital to do so.”
The agreement with Urgo, which is expected to be closed in the third quarter of this year, creates a combined company that will operate more than 235 hotels in North America, with HHM expanding into Canada, entering new markets in the U.S., while also adding mountain leisure, development and condo-hotel management capabilities to its portfolio.
Kakarla pointed out the reason for this deal was different than the one struck with White Lodging. “I tend to think of our capabilities as opposed to scale—what capabilities we’re missing that I either want to build or that we have the ability to participate in through others,” he said. “I am convinced that if you have differentiated capabilities and you are the best in your marketplace and those handful of things, the rest will come.”
For Kakarla, there were several things about Urgo that really stood out for him—a main one being that the company had experience in areas that HHM wanted to build its business in.
The transaction will mark HHM’s first international foray with its expansion into Canada. Urgo’s Canadian leadership team will continue to manage 17 hotels that are a mix of urban lifestyle, mountain leisure and extended-stay hotels throughout Quebec, New Brunswick and Newfoundland. Urgo has particularly strong market penetration in Montreal and is one of the largest operators in Canada for major brands such as Marriott and Hilton.
“They have a better than normal reputation, meaning really long-term owners, the developer of choice for Marriott and Hilton, and a strong presence in Montreal,” he said. “…It started to feel like it might take us a decade or two to develop that capability.”
Urgo also has a lot of ground-up development experience that will be helpful to HHM, especially in the areas of mixed-use projects, mountain leisure and condo hotels. “They have condo hotel experience,” the HHM CEO said. “They are managing a rental pool. They are overseeing the accounting related to the condo and the hotel. They are supporting the CapEx deployment that creates a consistency across the condo side of that investment.”
Kakarla said that while Urgo brings a lot of new things to the table for HHM, there were also similarities between the two companies, including the stability and quality of each of their teams. “Our above-property senior management team averages 10 years and Urgo is similar,” he said. “I just don’t know many companies that have that sort of stability and an almost terra firma, if you will, as to people who’ve been there a long time, really believe what they’re doing and are the best.”
He also liked that Urgo’s portfolio is with long-term owners, much like HHM. “The hardest part in our industry is to have new growth as opposed to acquiring new opportunities,” he said. “The other way to look at that is how much churn you might have across your portfolio. Each of us is in low single digits in terms of churn within the portfolio, and that’s really atypical. It tells you that the team is stable and of a type that tend to hold onto hotels for a longer period of time.”
Kakarla was also drawn to their culture. “The Urgos [run]a family company that has become institutional, without losing that team spirit like we are here,” he said. “People make a culture, but when you look at how we approach owners and they approach owners, we have very few people who need their name in lights. The focus is on the property.”
Donald J. Urgo, founder/president/CEO, Urgo, agreed that the two company cultures are a match. “The owners and team members we have served for nearly 50 years at Urgo are part of our extended family,” he said. “And after spending nearly two years getting to know Naveen and his leadership team, my family is confident in HHM’s ability to understand and embrace our history and our culture. Our collective leadership teams will develop capabilities to bring even more value to our hotel owners and associates.”
With these deals, Kakarla said that the focus for HHM will continue to be around quality, development of its capabilities and team members. “I say that because we don’t have as many institutional professional service firms in our industry as I would have expected if I look back a few decades ago,” he said. “There really is a space on the mantel. For owners, as they are evaluating which operating companies are truly differentiated in terms of what they offer versus their peers—and well beyond relationships—their results and the quality and stability of their team being the real differentiator.”
While acquisitions can change a company, he does not expect them to change too much. “None of the transactions we have done are intended to shake or alter our culture with each other or our approach to owners,” Kakarla said. “As long as I am maniacal about how we treat our team, how we approach our owners and really keeping the culture and glue that motivates all of us internally, the rest will come. I’m more focused on continuing what has worked than trying to turn anything upside down.”
