Interstate Hotels & Resorts sold to Kohlberg & Companies

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The world's largest third-party hotel management company has a new owner

Interstate Hotels & Resorts, which as of December 31, 2015, managed 76,361 rooms globally, has been acquired by New York-based private equity firm Kohlberg & Companies. The sellers were Thayer Lodging and Jin Jiang International Hotels, a JV which teamed up in late 2009 to acquire Interstate for a reported $307 million. The deal was made at the height of the economic downturn. "The hotel industry remains in deep recession, and we believe this transaction offers the highest and best value to our shareholders," Thomas Hewitt, Interstate's chairman and CEO, said at the time of the deal.

The dollar figure of this latest transaction was not made public; however, estimates from earlier this year suggested the company could go for more than $600 million.

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Interstate's senior management team will reportedly remain with the company during the transition.

"This transaction is validation of Interstate Hotels & Resorts' strategy, strength and leadership over the past five years," Jim Abrahamson, Interstate's CEO, said in a statement. "The partnership with Kohlberg will enhance the company's current management processes, with Interstate continuing to lead from a solid position, remaining focused on providing intuitive service to guests, and developing the best talent to deliver exceptional returns for owners."

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Who Is Kohlberg?

Kohlberg & Company, calls itself "a leading private equity firm with over 25 years of experience"...having "organized seven private equity funds with aggregate commitments of $5.3 billion."

In that span, Kohlberg says it has completed 68 platform investments and 146 add-on acquisitions, with total transaction value of approximately $10 billion.

Here's a look at it's rather lengthy investment approach. Its strategies include best-practice programs to reduce costs and improve efficiency; new market expansion; working capital reduction; and non-core asset divestitures.

According to its website, Interstate is part of its VII fund and it's only current hospitality-related holding.

Interstate is headquartered in Arlington, Va., and employs more than 30,000 workers domestically and internationally. Whether or not Kohlberg will tweak staffing through reductions remains to be seen.

As of December 31, 2015, Interstate oversaw the operations of 427 hotels.

"Throughout Thayer Lodging and Jin Jiang's five-year investment of Interstate Hotels & Resorts, the company has remained extremely strong—especially globally, now extending onto three continents," Bruce Wiles, president and COO of Thayer Lodging, said in a statement. "Both firms remain favorable to Interstate, its senior management team and the business and we expect it to continue to deliver outstanding operating results for hotel owners into the future."

C-Suite Talk

In a March discussion with Leslie Ng, CIO at Interstate, said the company was playing its cards close to the vest regarding a potential sale, choosing instead to discuss future acquisitions. But in 2015, Jin Jiang and Thayer began working with bank Moelis & Co. to market Interstate, and sources close to the deal reported that Interstate's owners were considering offers.

These actions have come to fruition, with today's announcement including Moelis & Co. as the financial advisor for the sale and Morris, Manning as Martin as legal counsel to Interstate. Other financial parties involved included Jefferies, which served as financial advisor to Kohlberg while Paul, Weiss, Rifkind, Wharton & Garrison served as its legal counsel. Antares Capital, Madison Capital, TIAA and MetLife are providing committed debt financing for the transaction.

Interstate's other large transaction of late was its July 2014 acquisition of Rim Hospitality and its portfolio of 70 managed hotels.

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