Wyndham Worldwide Corp. has added scale and a new flagship upper midscale brand as on Thursday it announced the acquisition of La Quinta Holdings’s 900-plus-hotel franchise and management businesses for US$1.95 billion in cash.
La Quinta shareholders will receive US$8.40 per share in cash (approximately US$1 billion in aggregate) and Wyndham Worldwide will repay approximately US$715 million of La Quinta debt net of cash and set aside a reserve of US$240 million for estimated taxes expected to be incurred in connection with the taxable spin-off of La Quinta’s owned real estate assets into CorePoint Lodging Inc.
Immediately prior to the sale of La Quinta to Wyndham Worldwide, La Quinta will spin off its owned real estate assets into a publicly traded real estate investment trust, CorePoint Lodging. Keith Cline, president and CEO of La Quinta, will become president and CEO of CorePoint Lodging when the spin-off is completed.
Patrick Scholes, analyst with SunTrust Robinson Humphrey, said they see the purchase multiple as 11.9x-13.1x EBITDA, adding that this multiple compares favorably to its estimate of Choice’s 2019 EV/EBITDA multiple of 14.5x.
The deal also shows how management views the importance of scale in the marketplace as with the acquisition of La Quinta’s asset-light, fee-for-service business, it adds about 12% to its portfolio with almost 88,000 rooms. Wyndham Hotel Group will span 21 brands and over 9,000 hotels across more than 75 countries.
Dallas-based La Quinta’s North American-centric portfolio includes 894 midscale hotels – 576 are franchised and 318 are managed. La Quinta has an established growth trajectory with a pipeline of 252 franchised hotels (30% of which are being converting or under construction as of 3Q17). As of year-end 2016, just over 10% of the pipeline was international and nearly 30% was located in Texas.
The La Quinta Returns loyalty program, with its 13 million enrolled members, will be combined with the Wyndham Rewards program, with its 53 million enrolled members.
Wyndham expects US$55-US$70 million of annualized synergies, primarily cost savings, which should be realized by the end of 2019.
R.W. Baird Senior Research Analyst Michael Bellisario said in his note that Baird is not surprised to see La Quinta’s fee-based businesses be acquired (versus being a stand-alone, publicly traded company); Accor, Choice, and Wyndham, among others, were the likely strategic suitors, in their opinion. Bellisario added that this transaction increases La Quinta’s real estate value, in Baird’s view, given its brand affiliation with a much larger global platform.
Wyndham President and CEO Geoff Ballotti noted how this acquisition also significantly expands its hotel management business (from 115 to 400 hotels) and provides new opportunities to drive increased growth.
Scholes added that with a larger management business it should better keep the hotel management business “in house” (as opposed to hotel owners looking for a third party to run their properties).
The transaction, which has been approved by the boards of directors of both companies, is expected to close in the second quarter of 2018 and upon the completion of the planned spin-off of La Quinta’s owned real estate assets into the separate entity.
Wyndham Worldwide’s planned spin-off of Wyndham Hotel Group, separating from its timeshare business, remains on track for an expected distribution in the second quarter of 2018.