Wyndham Worldwide Corp. continues to show its teeth in the hospitality industry's M&A carousel. The conglomerate, a holding company for Wyndham Hotel Group, is buying La Quinta Holdings’ hotel operations for $1.9 billion, adding the brand’s nearly 900 midscale and economy properties to its portfolio.
When the deal closes, Wyndham Hotel Group will now command a total of 21 brands, with La Quinta its third-largest brand by number of hotels behind Super 8 and Days Inn. In speaking with Hotel Management, Geoff Ballotti, president and CEO of Wyndham Hotel Group, said La Quinta will relocate its headquarters from Irving, Texas, to Dallas and that the acquisition has been one Wyndham has been pursuing for some time.
“This is just a great cultural fit for us, with a brand we think is tremendous,” Ballotti said. “Midscale is a segment we’ve been looking to grow in, and the acquisition creates the largest collection of midscale hotels in the business… at a time where it has never mattered more.”
Wyndham has been active on the transactional front. Last year, the company picked up AmericInn and Three Rivers Hospitality for $170 million, a smaller deal to be sure at 200 hotels, but a bellwether of Wyndham's commitment to grow and be a dominant force in the midscale space.
La Quinta’s North American portfolio consists of 894 midscale hotels, 576 of which are franchised and 318 are managed. The company has a projected pipeline of 252 franchised hotels, with roughly 10 percent of this pipeline located internationally and 30 percent located in the state of Texas.
As part of the deal, Wyndham is expecting to earn $55-$70 million in annual synergies focused primarily on cost savings, and expects to begin realizing them by the end of 2019.
The acquisition is expected to close in the second quarter of 2018, aligning itself with Wyndham Hotel Group’s planned spinoff of its hotel and vacation ownership businesses. La Quinta is also in the midst of its own spinoff, with the company’s real estate business to become its own separate entity known as CorePoint Lodging. Once the spin is completed, CorePoint will consist of 316 properties and approximately 40,500 rooms. This entity will also be included in the acquisition.
Barclays advised Wyndham in the acquisition, while J.P. Morgan advised La Quinta. In the event the deal sours, La Quinta will owe Wyndham a termination fee of $37 million.
“We’re on a journey to drive consistency and engagement,” Keith Cline, president and CEO of La Quinta, said. “We can control those two strategically, but when it comes to networking scale, driving conversions and bookings, this is the boost we need.”
Ballotti said that Wyndham will eventually be merging La Quinta’s loyalty program, La Quinta Returns, with Wyndham Rewards. Considering Wyndham Rewards topped lists last year for guest reimbursement opportunities, this could be a boon for La Quinta. There is no time scale on when the loyalty merger is expected to take place, but Ballotti said the first step in the process will be to confirm the statuses of all La Quinta Returns members and ensure they receive the same level of status at Wyndham Rewards. After that, the migration will begin.
“La Quinta will enjoy everything that comes along with the benefits of scale,” Ballotti said. “When you combine two excellent loyalty programs, it will drive more benefits to owners directly. Our tech distribution platform will also be a big impact for owners as we move forward.
Ballotti clarified that La Quinta employees will become employees of Wyndham Worldwide, without any major changes. “We will honor them with all the benefits of what a larger company can provide, and expand our management network to all associates,” he said.
M&A in the hospitality space has been rampant of late, especially in the midscale and economy spaces. Beyond the Wyndham deal announced today, Choice Hotels International acquired extended-stay brand WoodSpring Suites for $231 million in the middle of December. Choice's and Wyndham's acquisitions are comparable in that they were made to further establish themselves in segments both companies are already firmly planted in—extended stay for Choice, midscale for Wyndham. Both companies are confident in the performance of these segments in 2018.
"In our opinion, scale continues to increase in importance for management teams as they drive value for customers, developers and owners," Michael Bellisario, senior research analyst at financial services firm RW Baird, said in a statement. "The global brand companies are squarely focused on new unit growth and increased distribution, which can be achieved much faster via external growth (although at a substantial cost)."
“For midscale and upper midscale, there is a reason why you see developers racing to build in these segments and a reason you see guests flocking to the segment for its price point and value,” Cline said. “It’s a very attractive space to be in right now.”
Cline also said the deal with Wyndham makes sense on a cultural level, not just as a means to increase distribution for a larger company.
“There is a real opportunity here, with the way our cultures fit together,” Cline said. “It matters who you work with and the organization you are a part of.”