United States: Managing The Key Issues Affecting Hospitality M&A Deals

Last Updated: November 6 2018
Article by Bryan Mohler, Todd E. Soloway and Michelle Pham

The first half of 2018 has seen corporate mergers and acquisitions reach all-time highs in the United States and globally, a culmination of a strong M&A trend—exceeding $3 trillion—which has been building since 2015. With significant cash on hand as a result of rising profits in the robust post‑recession economy and favorable changes to the federal tax code, many companies are opting to accelerate their growth by purchasing other companies to acquire technology, intellectual property, assets, talent, customers and/ or market share.

M&A transactions in the hospitality industry have mirrored the overall uptick in M&A activity over the last three years, with significant consolidation including the $13.3 billion acquisition by Marriott International of Starwood Hotels & Resorts Worldwide in 2016; the $1.95 billion acquisition by Wyndham Hotels & Resorts of La Quinta Holdings earlier this year; the recently closed $318 million acquisition by AccorHotels of a 50 percent equity stake in sbe Entertainment Group; and the recent public announcement by Hyatt Hotels Corp. of its intention to acquire Two Roads Hospitality for $480 million. In addition to general economic factors fueling this trend, the hospitality industry has confronted, and continues to confront, industry‑specific influences that are compelling companies to seek to merge with or acquire other hospitality companies. In particular, the hospitality industry remains highly fragmented, with no single company holding significant global market share.

It must also contend with the increasing power and reach of online booking sites, and the impact of alternative lodging companies such as Airbnb. Rather than relying solely on organic growth, by acquiring other hotel brands, hospitality companies are electing to rapidly broaden their portfolios and strengthen loyalty programs, increase their leverage with respect to online booking sites, defend against alternative lodging companies, and expand into new markets.

This article explores some common issues that arise in M&A negotiations involving hospitality companies and provides guidance for how companies should address the related risks and liabilities. Fully understanding these risks and liabilities prior to entering into a M&A transaction is particularly important in light of the Delaware Chancery Court's recent decision in Akorn Inc. v. Fresenius KABI AG, C.A. No. 2018-0300-JTL (Del. Ch. Oct. 1, 2018), in which the court released the buyer, Fresenius, from its obligation to close its acquisition of Akorn as the result of the occurrence of a material adverse effect (MAE)—the first instance in which a Delaware court has released a buyer from such an obligation based on the occurrence of a MAE.

Common Issues

Issues that commonly arise during M&A transactions involving hospitality companies include withdrawal liability, ownership of intellectual property and data breaches. Although all of these issues may not arise in every transaction, and there will of course be others, it is incumbent on parties to a potential M&A transaction to fully grasp the potential economic impact of these issues.

Withdrawal Liability. Hospitality companies that own or manage hotels, particularly in large urban areas, typically have unionized employees covered by collectively bargained agreements requiring contributions to one or more multiemployer plans. In the event of a change in manager or a sale of a hotel, the seller or the terminated manager may experience a complete or partial withdrawal from a multiemployer plan, resulting in potentially significant withdrawal liability.

Generally, for purposes of labor laws, the hotel manager is the "employer" of the unionized hotel employees. However, under ERISA, the hotel owner could be the employer (various factors impact the determination of whether the hotel owner or manager is the employer). A change in the employer could trigger a complete or partial withdrawal. Even if a hotel owner and manager agree on who is the employer of the unionized employees for ERISA purposes, a multiemployer plan may disagree and assess withdrawal liability on the party it determines is the employer. Management agreements will typically provide that between a hotel owner and manager, the hotel owner is ultimately responsible for any withdrawal liability.

To mitigate the risk of a material withdrawal liability, the parties should consider: (i) who is the employer for ERISA purposes, and (ii) who bears the liability for withdrawal liability under the management agreement. In addition, it may be prudent for companies in the hospitality industry to seek annual estimates of withdrawal liability from any multiemployer plans in which they participate in order to help them understand their withdrawal liability exposure.

Ownership of Intellectual Property.

An important objective in many M&A transactions within the hospitality industry is the acquisition of additional brands for the purpose of expanding a buyer's brand portfolio. For that reason, the target company's ownership of the intellectual property relating to its brands is of utmost importance to buyers. Although third-party claims of ownership of a target company's hotel brands may be less common, hospitality companies with restaurant or other food and beverage brands should be cautious when developing new brands in partnership with chefs or other third-party partners. When unclearly and/or hastily documented, a valuable restaurant or other food and beverage brand in a target company's portfolio may present material issues in a M&A transaction if there is any indication that a third party has asserted, intends to assert or could assert a claim to ownership of any interest in such brand. Such claim may significantly undercut the valuation of the brand and the target company.

Before entering into a M&A transaction, target companies should take a closer look at their brand portfolios to determine whether any brands— e.g. hotel, restaurant or food and beverage, nightlife or other venue—have been developed jointly with a third party and, if so, whether the ownership and/or fee arrangements have been clearly and adequately documented between the parties.

This holds true even if a target company has operated consistently over a period of time as if it fully owns all rights to the subject intellectual property and/or if the applicable third party has made reference to an ownership claim but has not yet formally asserted such claim. The objective would be to ensure a clear (and, ideally, documented) understanding as to the target company's ownership of its brands so that a potential buyer may appropriately value the target company's brand portfolio.

Data Breaches. With technology being used at each step of the hotel booking process, from a hotel operator's mobile app permitting booking and check-in to the popularity of consumer review sites such as TripAdvisor, potential buyers in M&A transactions must pay careful attention to the risks and liabilities surrounding a target company's data protection and cybersecurity practices, particularly as it relates to compliance with governmental regulations. Buyers should request detailed data protection and cybersecurity due diligence responses from target company management and push to include lengthy and detailed representations and warranties regarding such matters (rather than relying on a general compliance with law representation). With the passage of new laws addressing data privacy and protection, including the European Union's implementation of the General Data Protection Regulation (GDPR) earlier this year, buyers rightly are becoming less amenable to the idea that they should bear significant risk post-closing for violations of these regulations and any claims from third parties arising from data breaches. In order to maximize the value of a target company in a M&A transaction, management should consider performing a thorough review of its current compliance with existing data protection and cybersecurity regulations and take steps to confirm best practices are undertaken company-wide to ensure compliance and to reduce exposure to potential data breaches. This may also include obtaining an insurance policy to cover risks relating to cybersecurity and data breaches.

Implications of 'Akorn'

The Akorn decision yields important implications for sellers and buyers negotiating a potential merger or acquisition. Most significantly, companies seeking to sell an equity stake or assets would be wise not to rely on the standard MAE defined term and related carve-out concepts and should instead specifically tailor such provisions based on their historical and current business operations. This is especially important in light of the Delaware Chancery Court's finding that a buyer having known or not known of a foreseeable MAE in advance has no impact on the existence thereof.

Specifically tailoring the MAE defined term and related carve-outs would require that selling companies undertake thorough assessments of their historical and current business operations to identify and understand more clearly potential risks and liabilities that could potentially constitute a MAE, including the common risks and liabilities discussed above arising from withdrawal liability, ownership of intellectual property, and/or data breaches. If any identified risks or liabilities are reasonably expected to occur or to continue between signing and closing, selling companies should seek to revise the MAE defined term and related carve-outs such that a MAE will not be triggered by the occurrence of such risks or liabilities. This would effectively force a buyer to acknowledge its awareness of a foreseeable MAE and agree to close over such MAE should it occur before closing.


With M&A activity in the hospitality industry expected to remain high in the foreseeable future, it is important that potential sellers and buyers understand the common issues that arise in negotiating M&A transactions involving hospitality companies. It would be prudent, particularly in light of the implications of Akorn v. Fresenius, for all parties to have a clear understanding of potential risks and liabilities of a target company that may arise or continue between signing and closing and how such risks and liabilities should be addressed by potential sellers and buyers to ensure certainty of closing.

Originally published by New York Law Journal

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
26 Mar 2019, Other, New York, United States

Jeffrey Alberts, co-head of Pryor Cashman's Financial Institutions Group and head of the firm’s White Collar Defense & Investigations practice, will be a speaker at the AIBCP's March Learning Event.

4 Apr 2019, Webinar, New York, United States

Partner Dyan Finguerra-DuCharme will be a speaker at Owning the Runway: Managing Fashion Product Designs and Trademarks, a webinar hosted by Clarivate Analytics.

17 Apr 2019, Conference, New Jersey, United States

Avram Morell, Partner and Co-Head of the Immigration Group, will be a panelist at the New Jersey Institute for Continuing Legal Education's (NJICLE) Annual Immigration Conference. Each year, NJICLE's comprehensive Immigration Conference, designed for those with some experience in immigration law, provides an in-depth explor

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions