Harvard Case - Marriott Corporation
"Marriott Corporation" Harvard business case study is written by Diana Harrington. It deals with the challenges in the field of Finance. The case study is 25 page(s) long and it was first published on : Mar 28, 1991
At Fern Fort University, we recommend that Marriott Corporation pursue a growth strategy focused on leveraged buyouts and mergers and acquisitions within the hospitality industry. This strategy will leverage Marriott's strong financial position and management expertise to expand its portfolio, increase profitability, and enhance shareholder value.
2. Background
Marriott Corporation, a leading hospitality company, was facing challenges in the late 1980s. The company had a strong brand and a solid track record, but it was facing increased competition and a sluggish economy. J. Willard Marriott Jr., the CEO, was exploring ways to enhance growth and improve profitability. The case study focuses on the company's decision-making process regarding its financial strategy and investment management, particularly in light of the prevailing economic conditions and potential leveraged buyouts.
The main protagonists of the case are J. Willard Marriott Jr., the CEO, and the company's board of directors. They are navigating the complex landscape of financial markets, risk management, and corporate governance to make strategic decisions that will shape the future of Marriott.
3. Analysis of the Case Study
To analyze the case, we can utilize the Porter's Five Forces framework to understand the competitive landscape and the Financial Statement Analysis to evaluate Marriott's financial health.
Porter's Five Forces:
- Threat of New Entrants: The hospitality industry is characterized by high barriers to entry due to the significant capital investment required. However, the threat of new entrants is moderate, as there are always new players seeking to enter the market.
- Bargaining Power of Buyers: Buyers have moderate bargaining power, as they can choose from various hotels and chains. However, Marriott's strong brand and loyalty programs mitigate this threat.
- Bargaining Power of Suppliers: Suppliers have moderate bargaining power, as Marriott is a large customer for many suppliers. However, Marriott can negotiate favorable terms through its size and strategic partnerships.
- Threat of Substitutes: The threat of substitutes is moderate, as travelers can choose alternative accommodation options like Airbnb or vacation rentals.
- Competitive Rivalry: The hospitality industry is highly competitive, with numerous established players and new entrants. Marriott faces strong competition from brands like Hilton, Hyatt, and InterContinental.
Financial Statement Analysis:
- Balance Sheet: Marriott's balance sheet reveals a strong financial position with significant assets and low debt levels. This provides the company with the financial flexibility to pursue acquisitions and investments.
- Income Statement: Marriott's income statement shows consistent profitability, indicating a strong track record of revenue generation and cost management.
- Ratio Analysis: Key ratios like profitability ratios, liquidity ratios, and asset management ratios demonstrate Marriott's strong financial performance and efficiency.
Key Findings:
- Marriott has a strong financial position and a solid track record of profitability.
- The hospitality industry is competitive, but Marriott's brand and loyalty programs provide a competitive advantage.
- Leveraged buyouts and acquisitions offer a potential avenue for growth and expansion.
4. Recommendations
Marriott should pursue a growth strategy focused on leveraged buyouts and mergers and acquisitions within the hospitality industry. This strategy should be implemented in the following phases:
Phase 1: Target Identification and Due Diligence:
- Identify potential acquisition targets: Focus on companies with strong brands, good locations, and potential for synergy with Marriott's existing operations.
- Conduct thorough due diligence: Analyze the target company's financial statements, operations, and management team.
- Develop a comprehensive business plan: Outline the integration strategy, potential cost savings, and expected returns on investment.
Phase 2: Negotiation and Financing:
- Negotiate favorable terms: Secure a favorable purchase price and ensure the integration process is smooth.
- Secure financing: Leverage Marriott's strong credit rating to obtain debt financing at attractive rates.
- Develop a financing strategy: Consider a combination of debt and equity financing to optimize the capital structure.
Phase 3: Integration and Optimization:
- Integrate the acquired company: Combine operations, systems, and branding to create a unified entity.
- Optimize the combined operations: Identify cost savings opportunities and leverage best practices from both companies.
- Monitor performance and adjust strategy: Continuously evaluate the performance of the acquired companies and adjust the strategy as needed.
5. Basis of Recommendations
This recommendation is based on the following considerations:
- Core competencies and consistency with mission: Marriott's core competencies lie in its brand, operational expertise, and strong financial position. Leveraged buyouts and acquisitions align with its mission to provide exceptional hospitality experiences.
- External customers and internal clients: This strategy will enhance customer experience by expanding Marriott's portfolio and offering a wider range of options. It will also create opportunities for internal growth and development.
- Competitors: By acquiring strong competitors, Marriott can gain market share, reduce competition, and enhance its competitive advantage.
- Attractiveness ' quantitative measures: Leveraged buyouts and acquisitions offer the potential for significant returns on investment. The NPV and ROI of these transactions can be calculated using financial modeling and valuation methods.
6. Conclusion
Marriott Corporation has a strong foundation for growth through leveraged buyouts and mergers and acquisitions. This strategy will leverage the company's financial strength, management expertise, and brand recognition to expand its portfolio, increase profitability, and enhance shareholder value. By carefully selecting acquisition targets, negotiating favorable terms, and effectively integrating acquired companies, Marriott can achieve significant growth and solidify its position as a leading player in the hospitality industry.
7. Discussion
Other alternatives not selected include:
- Organic growth: This strategy involves expanding operations through internal growth initiatives, such as opening new hotels or expanding existing ones. While this approach is less risky, it is also slower and may not provide the same level of growth as acquisitions.
- Joint ventures: This strategy involves partnering with other companies to develop and operate hotels. While this approach can provide access to new markets and expertise, it also involves sharing control and profits.
Risks and key assumptions:
- Integration challenges: Integrating acquired companies can be complex and time-consuming.
- Debt financing risks: Excessive debt financing can increase financial risk and limit the company's flexibility.
- Economic downturn: A downturn in the economy could negatively impact the hospitality industry and reduce the value of acquisitions.
Options Grid:
| Option | Advantages | Disadvantages | Risk |
|---|---|---|---|
| Leveraged buyouts and acquisitions | Rapid growth, market share gain, access to new markets | Integration challenges, debt financing risks | High |
| Organic growth | Lower risk, controlled growth | Slower growth, limited expansion opportunities | Low |
| Joint ventures | Access to new markets and expertise, shared risk | Shared control and profits, potential conflicts | Moderate |
8. Next Steps
- Develop a detailed acquisition strategy: Define the target criteria, financing strategy, and integration plan.
- Identify and evaluate potential acquisition targets: Conduct thorough due diligence on potential targets.
- Secure financing: Negotiate with lenders and secure debt financing for acquisitions.
- Implement acquisitions: Negotiate purchase agreements and integrate acquired companies.
- Monitor performance and adjust strategy: Continuously evaluate the performance of acquired companies and adjust the strategy as needed.
This timeline should be flexible and adjusted based on market conditions and the availability of suitable acquisition targets. By implementing this strategy, Marriott can achieve significant growth and solidify its position as a leading player in the hospitality industry.
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Case Description
This case describes management's sequential reevaluation of Marriott's debt capacity and the decision about how to invest this unused debt. Videotape #5556, "Strategic Leadership," is designed for use with this case (see Videotape Bibliography).
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