No stranger to hotels, LVMH owns Bulgari Hotels & Resorts Dubai through its jeweller-watchmaker.

In August 2018, ultra-luxury hotel group Belmond reported $16.5 million loss in the first half of 2018 and $1.5 million loss in the second quarter, compounded with the $45.1 million  in 2017, Belmond chairman Roland Hernandez could only offer this bit of assurance to investors and shareholders, “In light of low interest rates, high valuations and a scarcity of quality assets, global investors appreciate the enduring value of luxury real estate and the marketplace for luxury hotels today is very strong.” Indeed he was right, as of 17 hours ago on 14 December 2018, Luxury goods maker LVMH has agreed to buy Belmond luxury hotel group for $3.2 billion.

LVMH buys Belmond luxury hotel group for $3.2 billion

Belmond Cap Juluca is a dream-like escape, spread across the Caribbean’s most beautiful beach.

Counting the prestigious Cheval Blanc Courchevel ski resort and glamorous Bvlgari hotels amongst its holdings, LVMH is no stranger to luxury hospitality and with their acquisition of luxury hotelier Belmond, the luxury group is about to become one of the most influential luxury hotel groups in the world.

Beyond hotels, Belmond’s luxury hospitality portfolio of 46 brands also includes restaurants, trains and river cruises; but its most famed estates and brands include the Belmond Hotel Cipriani in Venice; the Belmond Hotel Splendido in Portofino, Italy; and the Belmond Le Manoir aux Quat’Saisons in Oxford, England; in all, the luxury hotel group counts properties across the globe from St. Petersburg, Russia and even the Americas, Copacabana Palace in Rio de Janeiro; and El Encanto in California.

Timeless, sophisticated elegance defines Belmond’s Anguilla resort

Business of Luxury: Why LVMH acquired Belmond instead of a Hotelier

Spending $3.2 billion for Belmond, this is not LVMH Group’s most expensive acquisition. the French luxury conglomerate spent 6.5 billion euros last year to complete their ownership of Christian Dior and in 2011, six years before, 4.3 billion euros to buy jeweller-watchmaker Bvlgari.

“Does a company really want to be in the hotel real estate, hotel management, hotel branding, rail, river cruise and restaurant businesses? The most likely scenario is that a private equity fund buys Belmond, does things to clean up and cut expenses and then sells off parts of the business.” – Bjorn Hanson to Travel Weekly

Belmond also owns the recently re-branded Orient Express, reviving a golden age of travel with cabins draped in plush fabrics, crisp white tablecloths set the scene for evenings of exquisite fine dining.

According to hospitality consultant Bjorn Hanson, the breadth of Belmond’s properties and companies made them an unlikely acquisition for existing specialist hotel groups. Of late, Belmond, also the owner of the re-branded Orient Express rail assets, had not only suffered financial woes but also endured a series of natural disasters which worsened its revenues including hurricane-related closures at its Caribbean properties Belmond Cap Juluca and Belmond La Samanna in 2017 and the water-damaged 21 Club earlier this 2018.

Yet, despite Belmond’s woes, the luxury hotelier still owned highly sought after luxury real estate holdings – with a natural limited supply courtesy of their exclusive locales and unique refurbished architectural wonders that simply cannot be just replicated.

According to Reuters, for $25.00 per class A share, LVMH is paying a 42% premium for Belmond  currently trading for $17.65 on the NY Stock Exchange before the announcement. The acquisition of Belmond for $3.2 billion is inclusive of the equity value of those shares at $2.6 billion as well as enterprise value which includes debt and preferred shares. Belmond shares jumped 40% in New York to $24.74 after announcement.

With posted earnings of $140 million before interest, taxes, depreciation and amortization (EBITDA) on revenue of $572 million, LVMH is paying 19 times of Belmond’s expected EBITDA for 2019. Both LVMH and Belmond issued a statement saying that transaction is expected to be completed in the first half of 2019, subject to approval by Belmond’s shareholders and European anti-competition regulators.

Analysts say the expansion of LVMH’s portfolio to encompass luxury hospitality services might serve as bulwark to inconsistent demand for luxury goods from Mainland China, in addition to the threat of looming trade war between its two biggest markets. Acquiring Belmond, LVMH now has the ability to offer consumers a holistic luxury experience.