REPORT FROM THE U.S.—When Brendan Watters, CEO of GuestHouse International LLC, first approached executives at Red Lion Hotels Corporation regarding a transaction, he wasn’t seeking the outcome that was announced Friday—that is, RLHC’s $8.5-million acquisition of GuestHouse.
“I definitely was not looking to sell,” he said. “I was looking to buy, and I’ve been dancing around with these guys for the better part of the year.”
Watters initially reached out when RLHC was exploring strategic alternatives to maximize value for shareholders.
“I looked heavily into whether I could take the company private,” he said. “I’ve always like their footprint, I’ve liked the Red Lion brands, and I’ve liked geographically where they’re situated.”
But RLHC management had other plans. In early 2014 the board hired Greg Mount as president and CEO, who implemented a turnaround plan that included reshaping the C-suite with a number of key appointments, unveiling a new prototype for the existing hotels and launching boutique brand Hotel RL. On top of that, he set an ambitious goal of 100 new hotel signings within 100 weeks.
“When we couldn’t get a deal done, we started talking when Greg Mount came in that these brands were a good combination,” Watters said.
It was then that RLHC made the acquisition bid.
“They made an offer recently. … I looked at it, put it to our two other partners. It’s a legitimate offer, it works for our franchisees, it works for us … and then they moved rapidly to close,” Watters said.
Under terms of the deal, RLHC has entered into a definitive agreement to acquire the intellectual property assets and all hotel franchise license agreements of GuestHouse International, L.L.C., for $8.5 million plus a potential additional payment of up to $1.5 million.
Brand synergies
Watters’ initial interest in RLHC was bred in a bid to get bigger.
“I’ve always like that company, and I’ve wanted our brands to be part of something bigger,” he said. “I wanted them to have a larger reservations center, a better distribution center.”
RLHC provided that—particularly after launching its RevPAK platform, which brings together what executives describe as “best-in-class,” third-party technology platforms to reservations, distribution, customer relations, CRM, marketing and other disciplines.
“We’ve already begun working on adapting RevPAK to be able to be configured to the GuestHouse and Settle Inn brands. Very, very quickly we want to onboard these brands to our operating platform. That’s priority No. 1,” said Bill Linehan, RLHC’s executive VP and chief marketing officer.
There were additional synergies as well, Watters said. For one, there was no brand overlap. GuestHouse International’s two brands, Settle Inn and GuestHouse Inn, operated at a lower end of the chain-scale spectrum (midscale and economy, respectively) than did RLHC’s revitalized Hotel RL, Red Lion Hotels and Red Lion Inn & Suites brands.
For another, there was little geographic overlap.
“I could combine them and didn’t have any friction with their owners,” Watters said. “There’s no impact really. Some of our brands are close to Red Lion properties, but they’re not (affecting) the Red Lion properties. It’s a really nice fit.”
RLHC adds 73 GuestHouse and Settle Inn hotels in the deal, bringing its portfolio from 57 to 130 in 30 states.
There will be very little conversion activity as the GuestHouse hotels convert into the RLHC system, Watters said.
RLHC executives “wanted the brands, and they wanted the franchisees to stay put,” he said.
“I feel very comfortable about my decision,” Watters added. “I like my franchisees. After 10 years of doing this and being the face of this company, I have a lot of personal relationships with my franchisees.”
He consulted with several of them before inking the deal. “ (The deal) was positively received, which made (it) a lot easier,” Watters said.
RLHC’s priorities
Watters last day with GuestHouse International was Friday, 24 April. He will continue to work in the hotel industry with Boomerang Hotels, the company that oversaw the GuestHouse franchising business.
Whereas in his GuestHouse life he oversaw franchisees, now he will become one of them, developing properties (some under the RLHC umbrella).
The RLHC executive team is eager to get started on the first step—converting the 73 GuestHouse and Settle Inn hotels into the operating platform, Linehan said.
Next comes marketing. “The sooner we can do that, the more I can drive business to their hotels,” he said.
The third step is branding. Linehan noted the progress RLHC has made in recent years in this regard, combing through its existing portfolio to weed out properties that didn’t fit, rolling out a new prototype and adding the boutique Hotel RL brand.
The GuestHouse portfolio does not need significant work, he said. But that does not mean potential changes are off the table entirely.
““We have no intention of changing the brands,” he said. “What we want to do is invigorate the brands.”
“That takes a little bit more time,” Linehan said. “We have to really work with the hotel ownership community to get that going.”
Last but not least is the growth platform, he said. RLHC has bulked up its franchise development team considerably in its effort to hit the 100-hotel-in-100-weeks goal, which excludes the GuestHouse deal, Linehan said. That goal focuses on organic growth—not accretive acquisitions, he explained.
The GuestHouse brands simply give the RLHC development team a few more arrows to pull from the quiver.
“We’re still on track with our 100 hotels in 100 weeks,” Linehan said. “That is what our franchise team is doing.”