It's really striking how this week bookended itself so cleanly and thematically.
To start the week, Choice Hotels International announced it had fallen short of its goal in its exchange offer for shares of Wyndham Hotels & Resorts and dropped the hostile takeover bid. And now to end the week, Hilton confirmed earlier rumors and formally announced plans to buy the Graduate Hotels brand for $210 million.
Those two deals — or would-be deal in the case of Choice-Wyndham — might not bear a ton of similarities on the surface beyond timing, but the contrasts are compelling to me.
Obviously, the most striking difference is Hilton's deal is likely to close — currently projected to happen in the second quarter of this year — albeit at a price tag that's a fraction of what Choice would have had to pay for Wyndham. But that fact is more about the culmination of many smaller differences.
First of all, the fact that Graduate is amenable to a deal to start with goes a long way, and the fact that this deal is so much more targeted — and thus less likely to draw any sort of regulatory scrutiny — is another big needle-mover.
That deal is unique in a few different ways. Graduate is a unique brand that targets very specific markets in a very specific way, so you can understand why Hilton would find it compelling. Along with that, you could see why current owner AJ Capital — which will continue to hold on to the real estate while signing new franchising agreements with Hilton — would see the value of plugging in to Hilton's existing loyalty and distribution platforms to drive performance.
On the Hilton side, this is an exceedingly rare moment for the company in its post-Blackstone buy era growing through acquisition rather than launching brands of its own. It makes sense, though. Launching a copycat brand to Graduate and trying to scale it would be a considerable amount of work in this circumstance.
Every time we see a noteworthy merger or acquisition in the hotel industry — particularly among brands — there is a wave of opining on whether this is the wave of the future. After Marriott International bought Starwood Hotels & Resorts nearly a decade ago, many were guessing this was the starting pistol for a new era of brand consolidation that simply didn't materialize in the way people had guessed.
But this sort of targeted merger-and-acquisition activity has definitely grown to be — and will likely continue to be — the primary consolidation driver among hotel brands. And that will only become more true for an industry that is suddenly concerned about antitrust scrutiny.
The scale of the moot Choice-Wyndham combination still wouldn't have been anything compared to much less fragmented industries. I know hoteliers often like to point at their travel cousins in airlines as an example of an industry that is much more heavily consolidated.
But merger-and-acquisition activity among the airlines might be a big part of what ultimately undid Choice's hopes of acquiring Wyndham. After all, federal authorities rejected Jetblue's planned acquisition of Spirit Airlines due to its heavy concentration in the budget airline sector of that industry.
A combined Choice-Wyndham would have faced a similar problem, with low overall market share but greatly outsized concentration in economy and midscale hotels. You wonder how much more palatable a deal would've been if the pursuer was a company such as Hyatt Hotels Corp. or IHG Hotels & Resorts, where the segmentation of the resulting company would have been much more varied.
Either way, it's hard to buy a company that doesn't want to sell.
Still, with all of this in mind, it's likely that smaller, more targeted deals remain the norm. They're easier to sell to almost all stakeholders, from your investors to your existing franchisees to customers to federal regulators. And they can achieve much more targeted growth for the price tag and take significantly less time to digest.
The fact that I just said that all but guarantees we see the largest brand merger or acquisition in the hotel industry's history this year, but I look forward to finding out just how wrong I am.
Let me know what you think on Twitter, LinkedIn or via email.
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