A key issue facing any large business today is that of rightsizing i.e. developing a business that is just the right size - for the markets it operates in and for the effective running of the organisation. During the 1980s, it was common practice in the UK for many organisations to grow by merging with others. A merger is a situation in which two or more enterprises ‘cease to be distinct’. This can occur in two ways:
- The enterprises are brought under common ownership and control.
- One enterprise ceases to exist as an individual enterprise and becomes part of the other.
A take-over is a kind of merger which occurs when one company buys a majority shareholding in another. Mergers tend to occur in waves, which are then followed by a lull in activity, before reappearing again - creating a phenomenon known as the ‘merger cycle’.
An increase in merger activity often occurs in boom times because organisations seek to expand their market dominance and market share. A merger is a quick way to achieve market growth and enables an organisation to gain synergistic benefits. Synergy is usually explained through ‘simple’ mathematics in the form of 2 + 2 = 5. In other words, the sum of the parts of two organisations working together is greater than the individual components working alone.
This case study examines how, in 1990, Bass benefited from purchasing Holiday Inn Worldwide to create a synergistic new organisational structure.
Bass is a leading leisure group operating in hotels, leisure retailing and branded drinks. In the early 1970s, Bass began looking for opportunities to expand outside the brewing business. The Group already had a solid foundation for building a worldwide hotel business with its Crest brand but, in order to be truly global, it was necessary to extend hotel operations beyond its home base. Holiday Inn offered Bass a number of selling points, notably its remarkable name recognition. Holiday Inn is the most recognised hotel name in the world and ranks in the top 100 of all brand names in terms of recognition, surpassing Mercedes Benz, American Express and Diet Coke.
Acquisition of Holiday Inn
In August 1989, Bass and Holiday Corporation signed a conditional agreement completing the Bass acquisition of Holiday Inn. The sale was finalised on 7th February 1990. The acquisition of Holiday Inn brought a new global orientation to the Group and a new global focus to the brand. In the summer of 1991, Bass moved the corporate headquarters of Holiday Inn Worldwide from Memphis to Atlanta. Although Memphis had been ‘home’ for nearly 40 years, Atlanta offered the corporate infrastructure, worldwide transportation access and the international presence, Bass felt was necessary for Holiday Inn Worldwide to succeed as a global business. In Hotels, through the acquisition of Holiday Inn Worldwide, the Group now has six key brands:
- Holiday Inn
- Holiday Inn Express
- Holiday Inn Garden Court
- Holiday Inn Select
- Holiday Inn Sun Spree Resort
- Crowne Plaza.
In Leisure Retailing, the Group has two distinct Divisions - Bass Taverns and Bass Leisure. Bass Taverns Ltd operates 2,778 outlets including Toby Restaurants, Harvester Restaurants, Vintage Inns, O’Neills Irish Bars and All Bar One cafe bars. They also hold a range of town and country public houses. Bass Leisure Ltd is made up of branded bingo clubs, bowling centres and betting shops as well as supplying managing and maintaining electronic and other gaming equipment.
In Branded drinks, there are two distinct divisions in Bass, namely Bass Brewers and Britvic Soft Drinks. Bass Brewers markets over 60 ales and lagers, operates eight UK breweries, producing over 8.5 million barrels of beer per year. It has over 23% market share which includes well known products such as Carling Black Label, Worthington Draught Bitter and Caffrey's Irish Ale. Britvic Soft Drinks Ltd sells over 1.8 billion litres of soft drinks and accounts for 20% of the UK market. Its national distribution network serves over 250,000 retail outlets from 20 distribution centres across the UK with well known brands including Tango, Pepsi, 7 UP and Robinsons.
Nowadays, it is important for most large companies selling branded consumer goods and services to think globally and not simply set out to dominate their domestic (national) market. Today’s modern consumers are sophisticated and cosmopolitan in their tastes - loyalty will be given to whichever producer supplies the best quality products and value for money. Transnational companies treat the global market place as their domestic market.
In the future, branded drinks manufacturers, hotel chains and leisure retailers will need to be very large in order to compete successfully - otherwise they will simply be swept away by bigger and better chains. The aim should be to develop a name for ‘excellence’ and then build on this framework by the careful acquisition of similar excellent organisations. The only way to protect your ‘domestic market’ is to extend the boundary of that market.
Thus Bass recognised the need to seek a global competitive advantage from large scale production and widespread market presence. The Group greatly extended its domestic market by its acquisition of Holiday Inn Worldwide - currently some 2,300 hotels in over 60 countries.
Background and development of Holiday Inn
The Holiday Inn success story is closely associated with the growth of the US economy after the Second World War. The demand for midmarket lodging was so great that, by the end of the 1950s, there were 100 Holiday Inn hotels in the United States. By 1964, there were 500, growing to 1,000 by 1968. As the interstate highway system developed, Holiday Inn turned its attention to sites near airports, in downtown areas and in suburban office locations. International expansion saw Holiday Inn move rapidly into Europe and Asia. In the early 1970s, one Holiday Inn hotel was opening somewhere in the world every two and a half days! However, during the 1970s, the boom started to peak and Holiday Inn found itself with a number of ageing hotels and an organisation that needed a serious rethink. Following Bass’ acquisition, Holiday Inn Worldwide was restructured into six key brands:
- Holiday Inn Hotels of dependable service and attractive facilities in more than 1,500 locations around the world.
- Express Hotels for budget conscious travellers.
- Holiday Inn Garden Court Hotels with distinctive regional personality, mainly located throughout Europe and South Africa.
- Holiday Inn Select Hotels which are specifically designed for the business traveller in North America.
- Holiday Inn Sun Family friendly hotel resorts at Spree Resort affordable budget rates.
- Crowne Plaza The Crowne Plaza brand is geared to the upscale business and leisure traveller around the world.
There are four major reasons why mergers take place:
- Diversification - to spread the interests of a company – moving into similar and related fields of business.
- The addition of new and profitable products to existing ones.
- The acquisition of management or technical personnel to increase the operating performance of existing businesses.
- The acquisition of businesses which can be made more profitable than their existing performance.
By acquiring Holiday Inn, the Bass Group was able to benefit, in some measure, from all of these. Holiday Inn has an established international reputation as a ‘top class’ chain of hotels. Bass was able to benefit immediately from this association and also acquire the skills and expertise of Holiday Inn’s pool of international human resources. The hotel business is a natural outlet and complement for the Bass Group’s existing range of product lines. There was also a number of powerful synergistic benefits to be gained from Holiday Inn in the areas of brand management, technological development and hospitality management.
A key element of business strategy is to define clearly what the main product lines are and then to focus resources on these lines. Such clarity is important for the external audience (i.e. customers) and the internal audience (i.e. those responsible for making key decisions within the organisation.)
Branding is an important part of this defining process. Brands should exemplify what the company stands for. The founding principles of Holiday Inn, for example, have always been those of customer service, quality and value. Today, the strength of the Bass Group’s worldwide hotel business is built largely on the power of the Holiday Inn brand.
Holiday Inn Worldwide offers a variety of products to meet the diverse needs of its customers. The company positions its portfolio of hotel products to the broad range of mid-market customers, which represent over 70% of all room nights sold around the world. Since its purchase, Bass has renewed and revitalised the brand, introducing new extensions to give it even more awareness.
In September 1994, Holiday Inn Worldwide announced a new branding strategy with the introduction of two new line extensions: Holiday Inn Select, for the business traveller who prefers the value and atmosphere of a traditional Holiday Inn and Holiday Inn Hotel & Suites, a product for the traveller on extended stay or seeking more spacious accommodation for work or leisure. At the same time, an initiative to modernise a significant number of the traditional Holiday Inn hotels in the Americas was launched. Holiday Inn Garden court was repositioned to allow the properties to meet the needs of their local markets and the company also established Crowne Plaza as a separate brand in the Americas, in light of its superior market recognition among business travellers. Outside the Americas, this line of hotels continues to operate under the Holiday Inn Crowne Plaza name.
A key motive for business acquisitions is the possibility of benefiting from the expertise and experience that exists within the acquired organisation. When the Bass Group bought the Holiday Inn brand, the object was not only to acquire the brand but also the technological leader in the hotel industry.
Technology is a key force, driving Bass forward to the 21st century. Every business relies on technology to maintain the edge over its competitors. In this case example, the technology ranges from the electronic entertainment business, relying on state-of-the-art remote data capture systems to record machine profits and market trends, to Bass Brewers’ production lines, producing and packaging over 80.5 million barrels of beer every year. Like the rest of the Bass Group, Holiday Inn uses advanced technology through its market leading reservation system. Holidex is the leading on-line reservation system in the industry and deals with over 25 million calls annually.
A third key synergistic benefit of the Holiday Inn acquisition relates to developing a global presence in hospitality management. Hospitality is central to Bass products and Bass employees. Prior to the Holiday Inn acquisition, Bass was an entirely UK based company. As an extension of the hospitality function, however, Holiday Inn has now given Bass a significant global presence.
Implications for consumers
Bass has pledged to continue increasing the brand value of its hotels with obvious associated benefits for the consumer:
- A worldwide presence. Travel and tourism is the largest industry in the world. With this in mind, Holiday Inn continues to grow - with over 2,300 hotels in 64 countries.
- Holiday Inn is dedicated to creating the highest quality standards. There has been a marked increase in the quality index, reflecting an increase in the standards of the hotel itself and the service level.
- Bass has provided marketing support at global, national and local levels including a ‘priority club,’ a customer loyalty programme and close alliances with major airlines.
- Detailed market research and analysis has made it possible to create sophisticated marketing plans for each Holiday Inn product.
Crowne Plaza hotels, for example, are a worldwide collection of hotels specifically designed for the business traveller. Located in major cities and resort destinations worldwide, these hotels provide full service meeting facilities, health clubs and fine restaurants.
This case study has examined Bass Group’s acquisition of Holiday Inn Worldwide and how the Group has brought focused strategic thinking to Holiday Inn hotels. The acquisition has enabled Bass to become a strong global player in an increasingly competitive international market place.