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GP Investments Portfolio Company BHG eyes expansion

22 June 2011

(Reuters) June 22, 2011 – Hotel operator Brazilian Hospitality Group (BHGR3.SA) may expand operations in some Latin American countries to gain scale and tap rapid income growth in the region,┬áChief Executive Peter van Voorst Vader said in an interview.

While BHG, as Brazil’s third-largest hotel operator is known, remains focused on growing locally through a mix of takeovers and new projects, overseas expansion could make sense in the long run, van Voorst said at the Reuters Global Real Estate and Infrastructure Summit in Rio de Janeiro.

In Argentina, where business tourism is booming as a result of strong trade ties with Brazil, van Voorst said any investment would have to be large to succeed. The main challenge to BHG’s cross-border push is adapting the company’s administrative structure to other countries’ taxes and laws.

“The important thing is to find the right moment to expand outside Brazil,” Dutch-born van Voorst, also a former oil and fast food industry executive, said late on Tuesday.

He did not say whether BHG had plans to use the Golden Tulip brand as it expands in the region. BHG owns the rights to run Golden Tulip franchises throughout Latin America.

Despite expansion plans, the company’s main goal is building market share in Brazil’s fragmented industry, which remains small for the size of the country and its tourism aspirations.

“We will do more acquisitions … with focus on places where there will always be business activity,” van Voorst said. “Going abroad could make sense in the future.”

That could be a good strategy as Brazil prepares to host the 2014 World Cup and the 2016 Olympics. Massive oil and gas, energy and other infrastructure investments are expected to ensure demand for hotel services in the years ahead.
For decades, investment in Brazil’s tourism infrastructure failed to reach its potential because of the nation’s dependence on foreign visitors. That reliance has eased in recent years as the domestic economy boomed, sparking a surge in the number of homegrown business and leisure travelers.

Things began to improve about four years ago as the entry of deep-pocketed chains helped increase the supply of upscale rooms and challenge the dominance of undercapitalized family-owned hotels.

BHG, Brazil’s only publicly listed hotel operator, is using its access to capital markets to buy smaller rivals in cities that are underserved. BHG doubled its size in 2010 with a combination of acquisitions and new, “greenfield” projects.
BHG, controlled by private equity firm GP Investments (GPIV11.SA), expects to expand another 75 percent to 13,000 rooms by 2014 from about 6,250 now.

The company has enough cash to fund its projects without selling new stock or debt, van Voorst said. It recently sold $52 million of stock in a private placement.

BHG focuses more on the business tourism segment and three- and four-star hotels aimed at mid-sized, industrial and commodities hubs than its larger rivals such as Paris-based Accor (ACCP.PA) and Sao Paulo-based Atlantica.

For instance, BHG is building a 200-room hotel in Itaguai, an industrial hub outside of Rio that is home to a steel mill, iron ore docks and other heavy industrial facilities expected to add thousands of jobs in coming years.

“Currently, you only have two or three bed and breakfasts there,” he said.

According to data by Jones Lang Lasalle, Accor is Brazil’s biggest hotel company, with more than 23,000 rooms either owned or managed as of the end of last year. Local player Atlantica followed with about 12,200 rooms.

Shares of BHG fell 0.7 percent on Tuesday. The stock has added 45 percent in the past 12 months.

By Guillermo Parra-Bernal and Vivian Pereira