NEW YORK CITY—The Marriott International deal to acquire Starwood Hotels & Resorts Worldwide for $12.2 billion is a harbinger of further consolidation in the lodging sector, as well as an example of a trend toward greater scale as a means to compete against alternative channels such as Airbnb. It may also provide a clue to the manner in which future lodging consolidation will take place, says Fitch Ratings.

"Corporates, or strategic buyers, may participate in more merger and acquisition transactions in the US lodging industry if the capital conundrum for private equity firms persists," according to Fitch. If the drop in investor demand for high yield bonds and loans caused by recent capital markets volatility continues, according to the ratings agency, then PE firms will face a higher cost of debt capital, "making it more challenging for them to deploy their significant uncalled investment capital, or dry powder."

As far as PE firms and their capital deployment strategies are concerned, Fitch cites another recent hospitality industry transaction: the Blackstone Group's $3.9-billion privatization of lodging REIT Strategic Hotels & Resorts Inc., first announced in September. That deal, though, illustrates a trend with broader implications than the hotel sector, since the Strategic Hotels buy is just one of several REIT privatizations in the past few months.

Along with Strategic, Blackstone this year has acquired BioMed Realty Trust and Excel Trust. Last month, Lone Star Funds completed its $7.6-billion acquisition of Home Properties Inc., and Starwood Capital Group agreed to buy Landmark Apartment Trust Inc. in a joint venture with Milestone Apartments Real Estate Investment Trust. "Many buyout shops have bolstered their commercial real estate platforms in recent years, raising record amounts of capital that they are now putting to work, including through REIT privatizations," according to Fitch.

Within the hotel sector, Fitch expects PE firms to target asset owners, which is to say REITs, "to the extent they play a role in future lodging industry consolidation due to better access to low cost debt. Discounted market valuations relative to net asset value and generally available, low cost property-level debt make REIT privatizations an attractive, feasible investment avenue for PE firms. Alternatively, corporate combinations within the hotel REIT sector have historically been less common, primarily due to narrow relative valuation multiple spreads for the companies in the sector as well as social issues."

That being said, the ratings agency says it expects Fitch further hospitality and travel industry consolidation in light of "the evolving competitive landscape that includes distribution channel consolidation," such as Expedia Inc.'s acquisition of Orbitz Worldwide Inc., Travelocity and HomeAway, along with "rapid growth in alternative lodging accommodations, primarily Airbnb and other short-term rental websites. Therefore, M&A event risk remains elevated for lodging C-Corps, with corporate combinations more likely" than leveraged buyouts.

"The reality is that all these groups need to become bigger and stronger to be able to fight against the newcomers," Andre Juillard, a Paris-based analyst with Kepler Cheuvreux SA, told Bloomberg last week. "We've been expecting consolidation for a while. We can see more deals coming to market."