ROCKVILLE, MD-—The hospitality industry will now have a more streamlined way to save on everything from soup to nuts (and bolts) following the recent acquisition by major procurement services provider Avendra, LLC of BuyEfficient, an online purchasing solution, from its parent company, Sunstone Hotel Investors, Inc.
The lodging REIT sold the portal for $26.5 million. “It really was a win-win for both companies,” said Sunstone President/CEO John Arabia. “This offers Avendra’s clients an Internet portal in which to conduct purchasing, which many hotels view as a significant advantage. From Sunstone’s point of view, while Buy-Efficient is a very interesting company with solid growth prospects, selling BuyEfficient allows us to focus where our focus should be, and that is on the ownership and asset management of hotel real estate.”
Sunstone has interests in 30 hotels representing 14,313 rooms, largely within the upper-upscale segment.
The deal is the first acquisition for Avendra in its 14-year history, and fills a specific niche the company has been eyeing for some time. “Avendra, over many years looked into e-commerce platforms and whether this [would be]something we also wanted to provide to our customers as Avendra evolves,” said President and CEO Wolfram Schaefer. “It seems, over many years, more and more management companies are trying to get even more control over their procurement processes and streamlinethem; e-commerce is one of those options. As we continued to look at what kind of services we could provide to our clients, this was one of the things we considered. When the opportunity came around, we decided maybe this was just the time to do that.”
Schaefer said the company had been in discussions with BuyEfficient in the past, but it was only this past June when Arabia approached Avendra that “serious discussions” got underway. By the end of September, it was a done deal.
With more than a decade in operation, BuyEfficient currently counts close to 1,300 hotels and resorts representing more than two dozen brands as online purchasers of hospitality supplies that include food and beverage, amenities and operational needs offered via partnerships with manufacturers, distributors and suppliers.
According to Avendra, which has more than 800 agreements with suppliers, its customers gain access to contracts leveraging more than $4 billion of annual purchases, with its programs ensconced within a variety of support and advisory services, with access to purchasing data and analysis. Its range includes F&B and kitchen equipment, rooms operation, engineering, construction, cleaning chemicals, administrative and financial services, grounds maintenance, golf pro shop and gift shop needs, spa equipment and products.
“We believe that the combination of those two platforms only will increase the buying power of the combined entity,” said Arabia. “From that standpoint, it’s good for our existing hotels. [Avendra] bought a company with decent-size earnings, and that is a business they are focused on every single day.
“We’ll continue to be a client of Avendra/BuyEfficient at several of our hotels,” he added.
In looking at the advantages for Avendra, Schaefer said, “We believe there could be an additional opportunity for us to help properties and management companies make the right purchasing decisions… We leverage a lot of spend and get really good prices based on the leverage and the service we provide. We help customers, those individual properties, whether it’s the purchasing manager, the chef, the engineer or the housekeeper, when they actually go out and buy something. We believe, with e-commerce, you can direct people to the items and the suppliers that their management company wants them to buy. It’s really important that you tell people in the process, ‘Here are the right items for you to buy; they’re the most cost-effective items,’ the most-highly leveraged items as we call them. That’s what the e-commerce platform can help. There’s efficiency and guidance in putting a system in place.”
The CEO noted hoteliers use other systems as well, which Avendra supports.
As for supplier agreements, Avendra’s catalogue outstrips BuyEfficient’s, but Schaefer said the company is working on offering the original Avendra contract portfolio to existing BuyEfficient customers through the e-commerce platform. “We hope that we can provide an alternative set. There are some redundancies, but there are just so many room suppliers in the United States. Actually, I believe between 70% and 80% of the suppliers were the same,” said Schaefer, noting the overall situation would be examined over the next six to nine months.
He stressed the BuyEfficient brand will continue to exist. “We believe BuyEfficient is an effective brand that was sold to more than 150 management companies, and I don’t see a reason why we should give up a brand that is well-established in the marketplace. We didn’t want to forego the name; that’s not the goal,” said Schaefer.
The CEO indicated any changes regarding the platform would be “gradual and well thought out, and come with the proper notice to the people who are using it.”
He expected the integration of BuyEfficient would be a nine- to 12-month process.
Schaefer was adamant about maintaining the relationships BuyEfficient has built up over the past decade, noting part of the appeal of the deal stemmed from both companies’ approach to clients and customers.
“We’re more than 10 times the size in terms of the spend we have under management, but we also are very customer centric. We listen to the management companies, we provide customized services where that makes sense and we thought, at least from that perspective, we’re really a good match,” said the executive.
Schaefer observed procurement has become more sophisticated over the past 15 years, with data playing a much larger role. “The availability of data has increased and people are asking more—and pointed—questions: What should I do? What should I buy? Why is that the better deal than this over here? In the aftermath of the recession, people have put more focus on procurement than they did before,” he said.
He added the trend toward more authentic guest experiences and the proliferation of boutique/lifestyle brands and independents has changed procurement as well. “It’s much more away from one-size-fits-all, and we need to provide many, many offerings because our customers—the hotels—want to offer many different things to their ever-evolving guest space.”
Sunstone’s CEO indicated the proceeds from the sale would go toward “general corporate purposes,” noting the company already has a “phenomenal” balance sheet and significant access to capital.
“It’s relatively small. $26.5 million relative to our $5 billion enterprise is a relatively small transaction for Sunstone, when you think about our last three acquisitions [The Boston Park Plaza, the Hyatt Regency San Francisco and the Marriott Wailea Beach Resort]. Once they’re fully renovated, we’ll have a total investment in those three hotels of about $1.1 billion. So, we’re talking about transactions on a different scale,” said Arabia, adding, “It really doesn’t change our investment strategies nor our balance-sheet strategies. But, it’s a good transaction for Sunstone, and I really do believe it’s a good transaction for BuyEfficient and Avendra. It’s rare to have a transaction that I think makes strategic benefits all across the board, but I think this one checks the box.”