REPORT FROM THE U.S.—There may be some risks associated with Wyndham Worldwide’s $1.95-billion acquisition of La Quinta Holdings’ hotel franchising and management businesses, but overall, owners and analysts see the deal as a smart move.
Alex Patel, La Quinta Brand Council Representative, AAHOA member and owner of Bluegrass Hotel Management, has been a La Quinta Inn & Suites franchisee since March 2008, and has served on the Brand Council since 2014.
Patel said the deal is positive for both companies, and he added the loyalty program integration of Wyndham Rewards and La Quinta Returns is a meaningful piece of the acquisition.
“It’s absolutely an important factor when today’s travelers are more loyal to a rewards program or parent company rather than a specific brand,” he said via email. “I believe LQ has approximately 13 million members; combining that with approximately 53 million Wyndham Rewards members is a significant boost for both companies. I would be surprised if there was a significant overlap given the segments both companies operate in.”
As a member of the Brand Council, Patel said he didn’t have any insights into the deal. But the council did speak with Wyndham Hotel Group President and CEO Geoff Ballotti, La Quinta President and CEO Keith Cline and La Quinta EVP and Chief Development Officer Rajiv Trivedi Thursday shortly after the deal was announced, he said.
“I’m confident La Quinta will, as always, solicit our input as we move forward in the coming weeks,” Patel said.
When Hotel News Now requested to speak to a Wyndham franchisee, a spokesperson for Wyndham said the company has spoken to members of its advisory boards “who have expressed excitement for the news.”
The spokesperson added that “the acquisition helps strengthen our position in the midscale (segment) and our increased scale will help all of our owners—as scale matters today more than ever.”
According to STR’s list of chain-scale segments, La Quinta Inn & Suites operates in the midscale category, along with Wyndham’s AmericInn, Baymont Inn & Suites, Hawthorn Suites by Wyndham, Ramada and Wingate by Wyndham brands. (STR is the parent company of Hotel News Now.)
Patel said that since La Quinta classifies itself as an upper-midscale brand, “there won’t be any significant overlap as the target customer for La Quinta likely does not stay in the economy segment often or at all.”
“It is still unclear what the market positioning strategy will be between brands like Wingate and La Quinta,” he said. “From a broader perspective, it will be interesting to see Wyndham’s ability to execute in a crowded and competitive midscale space compared to the economy segment.”
Joining a larger distribution platform has its benefits, Patel said, but “franchisees will be rightly concerned about splitting share with other Wyndham-flagged brands and its potential impact on (revenue per available room).”
“Many owners have expressed hope that Wyndham will incorporate and build off of La Quinta’s core values and personal attention each franchisee currently receives today,” he said. “La Quinta’s franchise support staff and senior leadership team under (Trivedi) have built strong relationships and goodwill with franchisees over the last two decades. I feel it will benefit Wyndham as a whole if they remain in place long term post-merger.”
Impression among analysts
Michael Bellisario, VP and equity research senior analyst at Robert W. Baird & Company, said his company was not overly surprised by the selling of La Quinta’s franchise and management business.
He added that there are many potential benefits to the acquisition, which Wyndham stated in its initial release.
“Coming back to tuck-in acquisitions,” Bellisario said, mentioning Choice Hotels International’s 18 December announcement to acquire WoodSpring Suites for $231 million, “it’s all about size, scale (and) having more dots on the map.”
Bellisario said the deal also comes with some potential risks.
“When 40% of projected pro-forma (earnings before interest, taxes, depreciation and amortization) is based on synergies,” there are added risks to that, he said.