A long-rumored deal is now substantiated. Choice Hotels International, long a mainstay in the midscale and upper-midscale space, bulked up its brand bench and added some higher-end free agents with its $675-million acquisition of Radisson Hotel Group's Americas business on Monday.
The deal gives Choice nine new brands totaling 624 hotels and more than 68,000 rooms. It is the second large-scale M&A deal on the brand side since Hyatt Hotels Corp.'s 2021 acquisition of Apple Leisure Group. Transactions among branded franchise companies had been quiet during the pandemic giving way to more M&A within the third-party management sector.
Choice is acquiring only the Americas business from Radisson, while the international business in EMEA and APAC remain operated by Radisson Hotel Group and owned by China's Jin Jiang. Previously, the two businesses had been operated separately for regulatory purposes.
Radisson is predominantly franchised and U.S.-focused, which aligns with Choice's current franchise model.
Choice's acquisition of Radisson's Americas business, like other monumental deals of the past (see Marriott/Starwood), is another indication that scale and distribution matter in the franchise hospitality space. For Choice, it brings complementing brands to its legacy estate of midscale and upper-midscale brands, which includes Comfort Inns & Suites, Quality Inn and Sleep Inn. The largest addition is the Country Inns & Suites brands, at 453 properties.
It also fills a void in the upscale and upper-upscale segments where, up to the deal, it had only one brand—Cambria—which has yet to gain critical mass in the U.S. (the brand was launched in 2005 and there are currently around 70 hotels open). New higher-end brands being added to Choice now include Radisson Blu, Radisson Red and the eponymous Radisson.
In a note to investors, RW Baird offered a positive view to the transaction, citing the company putting its under-levered balance sheet to work and broadening its reach into higher chain scales.
Jeffries analyst David Katz told financial website Seeking Alpha that the deal was likely to bring “new customers and synergies” to Choice’s Cambria brand. It would also “provide a platform for international growth, increase portfolio [revenue per available room] intensity and strengthen [Choice]'s loyalty program, all of which are key value proposition drivers."
According to Seeking Alpha, Radisson Americas is forecast to generate more than $160 million in fee revenues for Choice in 2022, the site said, as well as $45 million in owned revenues from a portfolio of three hotels worth more than $100 million on an enterprise value of $679 million.
What Owners are Saying
The deal is primarily being viewed favorably by the franchise community. Dhiren Masters, an investment strategist at RREAF Holdings and the North Texas Regional Director for AAHOA, said the announcement “came as a shock,” but gives Radisson brand owners in the Americas “a much stronger reservation system.” Similarly, he said that Choice Hotels has a much better loyalty program in the United States than Radisson America Group.
The deal will also help Choice move into the upscale, upper-midscale brands and full-service brands that Radisson has been developing for decades, said JR Patel, VP of operations of Viking Hospitality.
Grey Raines, managing partner at Raines, said the deal “positively benefits” the industry, which has “been on a path toward continued consolidation.” Raines expects Radisson’s hotels to “support and bring value” to the Choice Privileges loyalty program. “We expect Choice will leverage Radisson's portfolio of upscale products to entice upscale clients from other franchisors, thereby helping Choice's loyalty program.”
Any Unease
It's a common theme that franchisees are never fully satisfied with their franchisor and discontent over what they perceive as hefty, myriad fees and onerous brand standards abounds. Parth Patel, president of development at Vipa Hospitality and an ambassador for AAHOA in the Arkansas region, called the details of the final transaction “shocking,” especially given the recent hurdles the industry has faced. “All the hotel companies through the pandemic, they've said that they've been struggling, too," he said. "And now Choice can afford $675 million to buy Radisson Hotels America?” Patel also wondered aloud how further consolidation within the hotel space could potentially limit competition and give hoteliers less development choice.
Masters expressed concerns over how the midscale brands would integrate with one another. “Both brands have the same demographic customer staying at their hotels,” he said. Another concern was with international brand awareness. Radisson has maintained a division between its Americas business and the rest of the world for years. Choice, meanwhile, is almost entirely based in the U.S., meaning that while Radisson’s two sides may operate distinctly, it has a name recognition that Choice lacks.
Vipa’s portfolio includes a Country Inn & Suites by Radisson, as well as a Quality Inn & Suites from Choice—both in the same Arkansas market. The two companies have traditionally had separate reservations platforms—but now they would be united as part of Choice. “You're just going to be a part of the same reservation pie,” Parth Patel said. The power held by online travel agencies over hotels is another reason for concerns about future reservations. A good number of Choice’s reservations come through OTAs, Patel said, and owners “pay double and sometimes triple fees” for those bookings. “It probably works out for the stockholders and for these companies, but … it usually doesn't help the hotelier.”
Parallels
Several owners noted the similarities to Marriott’s 2015 acquisition of Starwood Hotels & Resorts and Wyndham’s 2018 acquisition of the La Quinta brand.
Hemant Chhatrala, CEO of the Chhatrala Group, suggested that much like Starwood and Marriott, Choice Rewards and Radisson Rewards Americas might remain separate entities for a while before merging.
JR Patel recalled concerns from La Quinta owners during the latter deal that Wyndham might “bring [La Quinta] down instead of keeping it up where it was.” For now, he said, he would be focused on the Country Inn & Suites brand.
Parth Patel, meanwhile, lamented the loss of La Quinta’s central reservation system when the brand was acquired. Today, he said, “it's just more fees with less revenue.” With numerous mergers and acquisitions within the industry shrinking the number of umbrellas and brands, he suggested that within 10 years. all the major hospitality companies will be counted on one hand. “It just takes away the competitive nature of our industry,” he said, and wondered if the corporations could find themselves running afoul of antitrust laws as mergers eliminate competition.