Choice Hotels International today reached a definitive agreement to acquire WoodSpring Hotels Holdings, a portfolio company belonging to American private equity firm Lindsay Goldberg, for an estimated $231 million.
"We are pleased to announce our plans to welcome WoodSpring Suites to our portfolio of brands. Like Choice Hotels, WoodSpring Suites has demonstrated exceptional customer service, attractive franchisee return on investment, and tremendous growth," Patrick Pacious, president and CEO of Choice Hotels, said in a statement. "Extended stay is a fast-growing segment, reporting some of the strongest gains in demand and has led the hospitality industry in annual RevPAR growth. The addition of the WoodSpring Suites brand will allow us to strengthen our scale within the attractive extended-stay segment, expand our runway for growth, and continue to create value for our customers, franchisees and shareholders."
Through the acquisition, Choice will gain nearly 240 additional extended-stay hotels in 35 states. Now, Choice will command an extended-stay portfolio more than 350 properties strong. Choice also plans on hiring existing WoodSpring Suites franchise business employees while strengthening its existing multiunit developer and franchise relationships, which were key to WoodSpring’s success early on.
This acquisition represents a massive boost to the company’s extended-stay presence—more than 200 percent—and it remains in line with its efforts to expand in the segment. Earlier this year, Choice revealed a new development prototype for its MainStay Suites brand, while Suburban Extended Stay, its other extended-stay brand, remains primarily a conversion option.
Choice Hotels, which has been relatively quiet on the acquisition front, and also shy to launch new brands (it launched its upscale Cambria brand back in 2005), likely sees the buy as huge a boost to its extended-stay business, which it needed—Choice's growth within the extended-stay segment has been muted (116 hotels as of the third quarter 2017 versus 110 hotels at Q4 2014). WoodSpring Suites expects to open more than 25 hotels in 2018, which would represent more than 10 percent gross unit growth, according to a note from Baird Equity Research.
Further, the acquisition illustrates the perceived strength in the midscale and economy segments as higher chain scale growth flags.
A Choice company spokesperson told HOTEL MANAGEMENT the WoodSpring brand was acquired to strengthen the company’s position in the extended-stay space, which the company sees as an important factor in its growth going forward.
“WoodSprings Suites will be a terrific addition to the Choice family,” the Choice spokesperson said. “Extended stay is a fast-growing segment, reporting some of the strongest gains in demand and has led the hospitality industry in annual RevPAR growth.”
In Choice’s press materials announcing the acquisition, the company noted the transaction will provide attractive returns, as well as “resilience through market cycles.” It’s well known that extended-stay hotels have a greater ability to withstand changes in market dynamics when compared to other hotel segments, and with rising global uncertainty and the general confusion about the current industry cycle timeline, Choice could be doubling down for when things go south.
It makes sense for the company to acquire strong extended-stay brands during this period, then, even if Choice already has a strong base in the extended-stay market. After all, Wyndham just acquired AmericInn’s 200 hotel portfolio this year for $170 million. It’s not rare for hotel companies to follow the herd and adopt similar strategies all at once, and with the level of consolidation taking place throughout the hotel industry these days acquisition strategies like these may see more action throughout the early months of 2018.
“Since opening its first property in 2003, WoodSpring Suites has been one of the fastest growing hospitality brands,” Choice’s spokesperson said. “The WoodSpring Suites acquisition expands Choice Hotel’s runway for growth, and will continue to create value and benefit our franchisees, employees, associates, shareholders and customers.”
WoodSpring Suites was founded in 2003 as Value Place, and its current moniker is the result of a successful 2015 rebranding effort. Over the past three years, WoodSpring successfully re-launched its brand and repositioned itself, increasing its unit growth by more than 25 percent and franchise fee revenue growth by 45 percent. The brand expects to open more than 25 hotels next year as well, and its current closest competitor is considered to be Extended Stay America.
All of these factors caught Choice’s eye, as the company views mergers and acquisitions through an opportunistic lens, rarely buying unless the deal makes sense. In essence, Choice’s last M&A effort to come about was its introduction of the Ascend Hotel Collection in 2008, where it introduced the first soft-branded concept to the hotel industry, an arena that has taken up much of the company’s attention.
Looking forward, the acquisition is expected to fully close in the first quarter of 2018, subject to regulatory approval and satisfaction of customary closing conditions. Following this, we can expect more information.
"Choice Hotels and WoodSpring Suites share the same values and dedication to customer service and franchisees," Gary A. DeLapp, president and CEO of WoodSpring, said in a statement. "We are thrilled that our brand will join the powerful value proposition that Choice Hotels offers and know our commitment to providing the best guest experience will remain a priority."