Company Analysis Framework

Morgan-Eskola Hospitality Partners (ME-HP), headquartered in San Francisco, is a venture capital firm that would like to acquire a chain of European style boutique hotels and spas in the largest cities in the United States. Since the hospitality business is undergoing a radical transformation due to the COVID-19 pandemic, the partners feel that they can invest at the appropriate time. In their part, ME-HP has commissioned the development of strict acquisition criteria, which include general, operational, and financial requirements.

The conceptual model of service delivery by Seyitooglu and Ivanov (2020) is the basis of the analysis as guidance for the strategic decision-making of ME-HP. The framework offers an integrated viewpoint, which incorporates the anticipation of customers, strategic examination, differentiation, and the formation of the service delivery systems to deliver crucial details required to make sound and strong acquisition choices.

Relevance of the Framework

The conceptual framework applies, in particular, to the development of the requirements of the acquisition, which are oriented toward the basic strategic concerns of the post-COVID hospitality environment. The best strategic solution to the acquisition decision in the case of ME-HP should begin with a clear understanding of the expectations of the customers (Seyitoğlu and Ivanov, 2020). The objective of the post-COVID world is centered on safety, flexibility, and original experience among the guests.

Effective identification of hotels that are capable of meeting the dynamics of the shifting demands will make them fit the market behavior and generate long-term customer loyalty. Subsequently, a situational analysis using such tools as the resource-based view (RBV), value chain analysis, stakeholder theory, and political, economic, social, technological, environmental, and legal (PESTEL) framework makes it possible to conduct a full evaluation of the internal competencies of a hotel, the external environment, and interactions (Seyitooglu and Ivanov, 2020). The holistic perspective is good in decision-making and mitigating risks.

Also, differentiation and positioning are very important, particularly in the boutique hotel segment, where the competition against the larger chains is intense. Uniqueness of their themes, customized services, and cultural experience embedded in the hotels make them unique and attract guests with higher values. Finally, one of the operation requirements is the design of the service delivery system (Seyitoğlu and Ivanov, 2020). Due to the lasting impact of the pandemic on the expectations of guests, the property should be able to provide them with the flexibility of service models, be it human, robots, or hybrids, to keep the safety of their guests intact and improve the overall experience.  The interrelational elements enable ME-HP to evaluate not only the profitability alone, but also strategic fit with the current and future trends in the hospitality sector, and the framework is extremely useful in screening investment opportunities.

Elements of the Framework for Developing Acquisition Criteria

• Demand: Customer Expectations

The pandemic has dramatically changed the expectations that travellers have of hotels. Modern consumers are more health-focused, more hygiene-focused, and more safety-focused, and many of them nowadays are more concerned about physically distant services and do not want to compromise the overall experience.

Contactless check-ins and robotics room services and artificial intelligence concierge are just some of the technologies that the guests have grown more inclined toward in such urban destinations as New York and San Francisco (Seyitoğlu and Ivanov, 2020). In the case of ME-HP, the technologies would imply the choice of hotel properties that are already equipped or can be easily changed and used to deliver physically distant services using robotics or automation.  

• Situational Analysis

The RBV view determines whether the hotel has valuable, rare, inimitable, and non-substitutable resources. Sustainable competitive advantage is provided to properties having high brand awareness, cultural peculiarity of architecture, or having regular local customers (Seyitoğlu and Ivanov, 2020). ME-HP will be able to recognize cost-saving opportunities and possible revenue increase by assessing the efficiency and effectiveness of the hotel operations (including housekeeping to food service).  The ME-HP has to take into account the relationships with the local communities, suppliers, technology providers, and government controls.

The more resilient in the uncertain environment are the properties with a well-developed stakeholder network, especially those that can collaborate with the health authorities or local tech startups. It should study the political, financial, social, technological, environmental, and legal situation in every target city (e.g., San Francisco vs. Boston) (Seyitoglu and Ivanov, 2020). A hotel in a jurisdiction that has friendly tech incentives and a public health infrastructure would have higher potential returns.

• Differentiation and Positioning

Differentiation is a survival issue when it comes to the case of boutique hotels. ME-HP is supposed to evaluate the position of every potential property in the local market. The hotel can identify with unique features, including architecture, wellness-related facilities, design topics, individualized service offerings, and cultural affiliations to the locality (Seyitoğlu and Ivanov, 2020). Market fit will depend on the manner in which the hotel balances safety and experience in the post-COVID environment.

As an illustration, hotels (that market visible hygiene protocols such as automated cleaning with guests in the vicinity) not only provide safety but also use it as a promotional tool (Seyitoğlu and Ivanov, 2020). Service is not the only differentiation, but emotional connection, as well. The hotels that support the guest to tell their stories, provide the selected experiences related to the local area, and have a focus on sustainability and responsible sourcing may be distinguished.

• Service Delivery System and Alternatives

The ME-HP needs to consider whether the current model of service delivery used by the hotel can support the repositioning in the post-viral world.  First fully automated experiences would attract technology-related customers who are worried about physical safety (Seyitoğlu and Ivanov, 2020).

The automated experiences involve an initial investment and save on labor in the long run. Second, hospitality and interpersonal bonds are more important values of human-based systems, yet they require high-level hygiene standards and training (Seyitooglu and Ivanov, 2020). Third, integrating robotics and humans, the systems are the most versatile and usually suitable in a boutique environment (Seyitoğlu and Ivanov, 2020).  But ME-HP should also consider the flexibility of properties to change to hybrid systems as per the emerging trends of the travelers.

Financial Data and Measures for Acquisition Criteria

Financial analysis has continued to be one of the pillars of acquisition evaluation. The ME-HP must be keen on employing various financial metrics and indicators in the process of assessing the possible acquisitions of hotels. First, the revenue per available room (RevPAR) is the key measure of profitability; a high RevPAR in a recovering market shows that pricing power and customer loyalty are high (Seyitooglu and Ivanov, 2020).

Second, occupancy rates, especially in the post-COVID setting, provide a hint about market resilience and property capacity to always seize the demand (Wieczorek-Kosmala, 2021). Third, operating margins demonstrate the efficiency of a hotel business and its ability to be extended in the future, which are the only keys to obtaining investment returns in the long term. Fourth, capital expenditure (CapEx) needs should also be cautiously evaluated, especially the expenses of the facilities modernization to support robotic or hybrid service delivery models (Seyitoğlu and Ivanov, 2020).

Hotels that need less retrofitting can be more easily and quickly integrated into the strategic vision of ME-HP. Fifth, a comprehensive break-even analysis after an investment raises awareness of the return on investment period, including the cost of redesign and the rate at which the market will be recovered (Kosmala, 2021). Sixth, debt ratios and liquidity are particularly important considering the financial instability that the pandemic has brought, since investments with debt that is easy to manage and high liquidity status are more stable and less risky investments (Seyitoğlu and Ivanov, 2020). The financial indicators taken collectively are very strong leaders in making strategic acquisition decisions.

Financial Liquidity Requirements

The financial liquidity needs identified by Kosmala (2021) in the article, COVID-19 Impact on the hospitality industry, must be considered crucial when defining the acquisition criteria of the ME-HP firm. The pandemic showed how vulnerable the hospitality enterprises were to liquidity shocks, particularly when the revenues are abruptly halted due to lockdowns and travel bans.

Kosmala (2021) argues that it is significant to maintain a sufficient amount of functional liquidity to carry on with the main processes during the period of low occupancy as well as to adapt to the new health and safety protocols, which involve capital expenditures, e.g., robotic cleaning or physical distancing retrofitting. The implication in the study is that when the applicants of the boutique hotels are considered, ME-HP must look at those possessing good current and quick ratios, good cash flow buffer, and low leverage to attain financial flexibility.

In addition to that, liquidity resilience means the willingness to withstand the global shocks in the future with the help of avoiding extreme actions, such as mass dismissals or debt accumulation (Kosmala, 2021). The integration of the requirements into the criteria of the acquisition will imply that the portfolio will not only be able to withstand the problems of the future, but also be able to capitalize on the opportunity by remaining operational, retaining talents, and implementing the innovations in the service delivery systems promptly.

Strategic Acquisition Criteria for ME-HP

The formulated strategic acquisition criteria fall under ME-HP and can be attributed to the evolving post-COVID hospitality setting and supported by the service delivery model by Seyitooglu and Ivanov (2020) and the financial resilience approach by Kosmala (2021). The criteria of acquisition are a moderate argument; a combination of financial feasibility, operational preparedness, the strategic location, as well as the customer worthiness, which are significant in the long-term development and sustainability of ME-HP in the evolving hospitality sector.

1. Service Delivery System Flexibility: Hotels in a post-COVID world have to cater to the differences in how concerned their clients are with physical interaction. The property that will be able to effectively adopt robotic, hybrid, or even human-provided services (e.g., check-in with no contact, robotic cleaning) will be in a better position to adapt to shifts in their expectations and health crises in the future (Pillai et al., 2021).
2. Financial Liquidity and Resilience: Target hotels should be characterized by good liquidity ratios, consistent cash flow, and minimal reliance on high-interest debt. The criteria make sure that there are sustainable operations in times of downturns, and it carries out investments in health and safety upgrades without going overboard financially (Kosmala, 2021).
3. Customer Experience Differentiation: Boutique hotels survive on the distinctive and good quality guest experiences. The ME-HP must also focus on properties that can be differentiated based on the design, theming, customized service, or synthesis of local culture (Kosmala, 2021).
4. Tech-Readiness and Infrastructure Compatibility: Homes with already automatable infrastructure (e.g., advanced corridors to deliver robots, in-room smart) would have less capital expenditure to implement safer service designs (Kosmala, 2021).
5. Strategic Location and Market Demand Recovery: The location of the properties must be in cities that have good business travel, wellness tourism, and weekend getaway segments, such as San Francisco or Boston (Kosmala, 2021).
6. Operational Efficiency and Value Chain Strength: The value chain analysis lens would help ME-HP identify those hotels that have operational efficiency and make the most out of their staff levels and those that have strong networks with suppliers (Pillai et al., 2021).

Reflection

A strategic decision-making framework, as used by a practitioner to set acquisition criteria, is of immeasurably high value. This type of framework is especially beneficial in the post-COVID hospitality industry, where uncertainty and changing consumer habits are significant issues, and the decisions should be made according to the long-term strategic objectives (Pillai et al., 2021).

The combination of customer expectations, RBV, and relations with stakeholders, coupled with the environmental conditions (PESTEL), can allow practitioners to gain better insights into the positioning of the hotel and its operational sustainability. The analysis makes sure that the decisions made are not only reactive but also proactive and futuristic. What is more, the framework promotes the internal consistency of the evaluation process as all the properties are rated on the same basis.

• Lesson Learned

During the analysis, I have come to understand why I would need to have a systematic model that I would drive strategic acquisitions, especially in an unstable industry like the hospitality industry. The Seyitooglu and Ivanov (2020) model indicated that it is rather important to define customer expectations and create service delivery systems to satisfy the expectations of health, safety, and experience in a post-COVID environment. I learned that financial liquidity extends beyond the availability of money and must be able to withstand and be adaptable during times of crisis, as defined by Kosmala (2021).

I realized the applicability of such models as RBV, value chain, stakeholder theory, and PESTEL to provide a full image of potential acquisitions. The concept of differentiating based on new experiences was also a concept that has played a decisive role in the segment of boutique hotels. I have also learnt that profitability is not the only factor of consideration whenever making a decision concerning acquisition, but a combination of flexibility, being prepared to address infrastructure needs, and alignment of stakeholders. Most importantly, I came to realize that it is my duty to make decisions when investing in the hospitality industry that are both financially disciplined and strategically planned.

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