Why procurement alpha is often overlooked in Hospitality Portfolio Acquisitions

Private equity firms investing into hospitality have become increasingly sophisticated over the last decade. Financial engineering capability was always highly advanced, but revenue management and commercial optimisation capabilities are now also deeply embedded into many investment and operating models. Recently, operational expertise has also evolved materially, particularly around systems, labour models, commercial performance and platform scalability.

Yet procurement often still sits outside the core acquisition thesis.

This is not because hospitality investors lack operational sophistication. Quite the opposite. Most hospitality investors are focused on the right things: growth, RevPAR, labour productivity, systems integration, guest experience and operational scalability. These are visible, strategic and highly material operating levers within hospitality portfolio companies.

The issue is that procurement capability in Private Equity acquisitions has not evolved at the same pace as these other operational disciplines, and simply isn’t considered as a result of orthodoxy and bandwidth.

The emergence of Private Equity Operational Capability

Over the last fifteen years, private equity has built increasingly sophisticated approaches to commercial growth and operational improvement. Entire ecosystems now exist around revenue management, pricing optimisation, digital strategy, labour efficiency and platform integration. Operating partners and portfolio operating teams have become materially more capable and increasingly operationally hands-on.

Some PE firms outside hospitality are now beginning to build procurement capability internally as part of broader operational value creation strategies. However, specialist hospitality procurement capability remains comparatively rare within hospitality investing and portfolio operations.

As a result, procurement maturity frequently receives little to no attention during acquisition and value creation planning for target hospitality portfolios. This creates an interesting dynamic – and a huge opportunity for Alpha from an investment perspective.

Procurement upside in hospitality portfolios is often quite easy to identify

At Argillan, we typically see hospitality portfolios leaving 6–16% of EBITDA on the table through procurement inefficiency. This is not necessarily because these businesses are poorly run, but because procurement maturity often has not evolved at the same pace as other operational and commercial functions within the platform.

Strong hotel groups are naturally focused on growth, guest experience, RevPAR, operations, staffing and expansion. These are the visible priorities within the business and rightly receive substantial leadership attention. Procurement, meanwhile, often evolves more reactively as portfolios scale. Supplier structures develop organically over time, legacy relationships remain in place, purchasing autonomy persists at site level and specifications gradually drift as operational continuity is prioritised ahead of procurement standardisation.

The important point is that this opportunity is often relatively easy for experienced operators to identify. In practice, a short operational discussion is frequently enough to determine whether procurement maturity has evolved alongside the broader platform, or whether substantial latent EBITDA opportunity still exists within the business.

It can take only a high-level initial review to estimate how much procurement alpha may be sitting inside a potential acquisition target.

Why this matters from an investment perspective

• Hospitality portfolios may be mispriced

  If procurement maturity is not being systematically assessed during acquisition, then embedded operational upside is unlikely to be fully reflected in valuation thinking either.

  Two hospitality portfolios may present similar headline financial performance while containing materially different levels of latent procurement opportunity beneath the surface. One may already have institutional procurement discipline embedded into the operating model. The other may still contain substantial recoverable EBITDA opportunity that has not yet been systematically identified or captured.

  Where procurement capability does not meaningfully feature within acquisition thinking, the distinction between the two may remain partially invisible.

• Procurement matters more in a higher-cost capital environment

  The importance of procurement maturity increases materially in a higher-cost capital environment.

  During periods of cheap capital and rapid valuation expansion, operational inefficiency can remain partially hidden beneath topline growth and multiple expansion. That environment has changed. Financing costs are higher. Valuation discipline is tighter. EBITDA quality matters more.

  Investors are increasingly required to create value operationally rather than relying primarily on leverage or market expansion. In that environment, operational alpha becomes more important. Procurement may now represent one of the last major operational value creation levers within hospitality that still sits only partially inside the mainstream investment playbook.

• If procurement opportunity is not identified during acquisition, it can be difficult to activate later

  Acquisitions are ultimately made on the basis of an investment case. That investment case identifies the key operational and commercial levers expected to drive value creation post-acquisition. These priorities are then embedded into the portfolio company plan, management incentives and the broader operating agenda.

  If procurement opportunity is not identified during acquisition and incorporated into the investment thesis itself, it can become materially harder to activate later. Management attention naturally focuses on the priorities established early in the hold period. Revenue growth, operational integration, systems and labour initiatives tend to dominate the agenda.

  In many cases, procurement value creation is not absent because it is difficult to identify. It is absent because it was never explicitly included in the acquisition lens in the first place.

The implication for hospitality investors

Procurement maturity should increasingly be viewed as a material part of the investment memorandum rather than simply an administrative function sitting beneath operations.

That does not mean every hospitality portfolio contains transformational procurement opportunity, nor does it mean procurement alone creates investment success. However, it does mean that hospitality investors may be systematically underestimating the scale and accessibility of procurement-led EBITDA improvement within hotel platforms.

The hospitality investment market has become highly sophisticated at identifying commercial and operational upside. Procurement capability may now be one of the remaining areas where meaningful latent value creation opportunity still exists.

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Argillan

Argillan works with hospitality investors and portfolio companies to identify procurement alpha and unlock sustainable EBITDA improvement across hotel platforms.

We help investors understand where procurement maturity has — and has not — evolved alongside the broader business.