The China-focused private equity firm wants to leverage its travel and tourism expertise in Japan, where it sees opportunities to drive consolidation of fragmented independent local hotel operators

Investor interest in Japan’s hospitality industry has picked up recently, with The Blackstone Group, Lone Star, and Goldman Sachs Asset Management backing hotel chains over the past 12 months. Chinese representation in this deal flow has been thin, but Ocean Link recently made its Japan debut with the acquisition of local operator Hotel MONday.

The private equity firm, which focuses on travel, tourism, and consumer technology assets, teamed up with Delonix Group – a Chinese hotel group and an existing portfolio company – to acquire a combination of new and existing shares. The transaction was settled in cash, with an earnout arrangement. Ocean Link and Delonix will hold equal stakes in the company.

“We are keen on pursuing roll-up acquisitions in Japan’s tourism market as part of industry consolidation,” said Tony Jiang, a founding partner of Ocean Link, who added that the firm’s interest in Japan extends to travel platforms and tourism-focused retail.

The size of the deal was not disclosed. Ocean Link is currently deploying its second fund, which closed on USD 580m in 2021. At the time, Jiang suggested that aggregate deployment could reach USD 1.4bn, based on co-investment traction in the fund’s early transactions. The firm mobilised USD 500m in co-investment alongside its USD 310m Fund I corpus.

Ocean Link’s investment thesis for Hotel MONday is based on confidence in company management, expectations around the structural evolution of Japan’s tourism industry, and a post-COVID-19 recovery in visitors to the country.

According to Japan National Tourism Organisation, arrivals reached 25.1m last year, up from fewer than 250,000 during the pandemic-blighted 2021. They spent a record JPY 5.3trn (USD 34.9bn), encouraged by a weakened yen. The pick-up from China has been more modest. It accounted for 9.7% of visitors and 14.3% of spending in 2023. This compares to 30% and 36.8% in 2019.

Hotel MONday became available because of pandemic-induced stress, but it broke even for the 12 months ended March 2023 and is expected to be profitable for the most recent financial year, according to Jiang. Cash flow is no longer a concern, and he sees further upside in the continued tourism recovery, especially in terms of Chinese tourists.

Japan’s hotel industry is dominated by international chains and a handful of operators controlled by domestic conglomerates. Strong local independent players – like Jin Jiang International, H World Group, BTG Homeinns, and Atour Lifestyle Holdings in China – have yet to emerge, but Jiang believes this will happen in time, aided by capital and professional management.

An ideal asset?

Hotel MONday was founded in June 2018 by Akira Hirabayashi, who previously spent more than two decades at HIS, one of Japan’s largest travel agencies. The company operates 24 hotels under its brand with a total of 1,800 rooms. Twenty of these hotels are in Tokyo, located in tourism spots such as Ueno and Asakusa, while the remainder are in Kyoto and Osaka.

Ocean Link initiated market research in May 2022, and having narrowed its scope of interest to hotels close to first-tier tourist spots, reached out to Hotel MONday 14 months later. Due diligence was aided by the former Japan head of Trip.com who was previously an independent director at Hotel MONday. Trip.com – formerly Ctrip – was an early strategic backer of Ocean Link.

While many other private equity investments in Japan’s hotel industry have targeted portfolios of properties, Hotel MONday is an asset-light operator that rents premises from third parties. Ocean Link and Delonix will leverage their industry experience by helping the company improve its dynamic pricing models, operational integration, and information systems.

The private equity firm, which was set up by Jiang, formerly of The Carlyle Group, and Alex Zheng, a co-founder of China’s Plateno Hotels Group, has previously invested in hotel and flight booking platform eLong – which was privatised and then merged with Tongcheng Network Technology – car rental player eHi Car Services, and hotel operator Zhejiang New Century Hotel Management.

New Century was another privatisation. Supported by Ocean Link and HongShan, in 2021 it merged with Betterwood Hotel Group, which was founded by Zheng, and became Delonix. Subsequent additions to the platform include asset-light brands Artotel and Swiss-Belhotel in Indonesia.

This activity reflects a broader global expansion trend among Chinese hotel operators, as evidenced by H World’s acquisition of Germany-based Deutsche Hospitality. Delonix wants to do the same, establishing itself as a pan-Asian player, and ultimately as a global player.

“The core value proposition of a hotel management company is bringing guests to the properties, which underlies the brand. Central to this proposition is the membership programme. National programmes are preferable to provincial programmes, and pan-region or global membership programmes surpass national ones,” Jiang explained.

Ocean Link will take primary responsibility for the execution and management of the investment. Jiang observed that the firm’s industry expertise is applicable to multiple geographies beyond China, but Japan has been identified as a priority. Still, he is cognisant of market risks, from exchange rates – Ocean Link will mitigate this by relying on local debt financing – to demographics.

“The ageing population certainly represents another risk in the equation. As we navigate investments in Japan, our focus will be directed towards ‘Japan for global’ prospects,” Jiang said. “Tourism is inherently an export sector reliant on the global economy.”