Leko: Adris Acquisition Will Contribute to the Growth of HUP Zagreb’s Portfolio, Provide Security to Employees

The latest acquisition in the hotel market, HUP Zagreb by the Adris Group, is a welcome shift in the market as it marks Adris’s entry into a new market segment of urban hospitality, emphasizes consultant Sanja Čizmar from HD Consulting – Hotel and Destination Consulting, who expects the continuation of consolidation in the hotel sector.

The Adris Group announced earlier this week that it has signed a strategic partnership and purchase agreement with HUP Zagreb, whereby Adris becomes the owner of 77.7 percent of the shares in Expertus, which is the majority shareholder of HUP Zagreb with a stake of 58.6 percent, and the agreement will come into effect upon approval by the Competition Agency.

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The CEO of HUP Zagreb, Anđelko Leko, remains the owner of 22.2 percent of Expertus, and the company states that they are on the trail of continuous investments of over 100 million euros within a few years and a permanent focus on further growth and development of the company, recognizing the opportunity to achieve goals in finding a strategic partner in Adris.

“We are satisfied with the signed agreement. The Adris Group is a reputable and stable company, one of the leaders in Croatian tourism and financially among the top in Croatia, and its strength will certainly contribute to the further growth and development of the HUP Zagreb portfolio and provide security to employees and shareholders,” said Leko.

Several Aspects of Hotel Sector Consolidation

Sanja Čizmar, senior partner at HD Consulting – Hotel and Destination Consulting, told Hina that this acquisition is not surprising, as HUP Zagreb’s hotel portfolio has ‘premium’ locations in Zagreb and believes that this, along with necessary investments, will bring good future market potential and business success.

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Assessing that such a move contributes to the continuation of consolidation in the hotel sector in Croatia, which has been present in recent years, Čizmar reminds that these processes have been initiated by the capital-strongest and largest hotel groups in Croatia, which mainly acquire portfolios of hotels and other accommodation facilities organized into hotel-tourism companies in tourist-attractive destinations.

“It is about occupying new market positions of these ‘strong players’, or gaining larger market shares. Being present in attractive areas, with quality facilities, is very important for the future and market-business success of these groups,” says Čizmar.

She adds that such processes are present globally, but that in Croatia they are expressed to a significantly greater extent, as several of the largest hotel groups control more than half of the accommodation capacities in hotels, tourist resorts, and camps.

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Such a high degree of capital concentration in the hotel sector in the global market is not possible due to the size of the market and the fragmentation of ownership, especially in Europe, but Croatia is, in international terms, still a small hotel market, dominated mainly by domestic companies-investors.

Čizmar considers this logical due to still significant barriers in the process of development and investment in hospitality, as well as, as she says, non-competitive business conditions compared to competing Mediterranean countries, from VAT to overall tax burden, so domestic hotel companies find it easier to navigate such business and development conditions than foreign investors.

She mentions several significant transactions in the current period, each characterized by certain specifics, and besides the latest acquisition of HUP Zagreb by the Adris Group, which includes the tourism company Maistra, she notes that there are other forms of consolidation in the hotel sector of Croatia, including, for example, the leading hotel companies stepping into new geo positions, but in the same type of business.

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“This is a justified strategy considering the importance of attractive locations in the tourism business, for which a good example is the expansion strategy of Valamar Riviera, which is intensively entering new resort business projects in new areas, for example, ‘entering’ Imperial Rab in Rab, Helios Pharos in Hvar, and Hotels Makarska in Makarska where they had not operated before. In doing so, it applies a strategy of acquiring hotel companies mainly in strategic partnership with financial investors, which is a winning combination of proven management know-how that Valamar possesses and the financial-investment potential of strategic partners,” Čizmar believes.

The third aspect of consolidation in the domestic hotel sector occurs within ownership groups, when they decide to integrate multiple companies they own, with the latest example being the merger of Istraturist with Plava Laguna, which, in her assessment, achieves synergies in management, allows for clearer market positioning policies, but also achieves rationalizations in operations.

Continuation of Consolidation Expected

“In the next period, the continuation of consolidation in the hotel sector can be expected, primarily through the purchase of several more hotel companies in state ownership by the strongest hotel companies in Croatia. The entry of large international groups interested in developing greenfield projects, purchasing portfolios of hotel properties, or highly attractive individual hotels in Zagreb and coastal cities, where seasonality of business is less pronounced than in smaller holiday destinations on the coast and islands, is also possible,” predicts Čizmar.

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In addition to hotel companies in state ownership, she sees potential ‘targets’ for acquisitions in privately owned hotel companies, and whether such purchase transactions will occur will largely depend on the reality of market value assessments of the portfolio by sellers and buyers, as, according to Čizmar, “recent practice has shown that the perception of market value by sellers and buyers differs significantly.”