Over the past year, Wyndham Hotels & Resorts executives have been vocal about their appetite for mergers and acquisitions as the company has been relatively flush with cash to deploy to potentially buy a brand to add to its portfolio.
But during a call with analysts this week to report second-quarter earnings, executives said there haven't been a lot of options to consider in terms of significant brand deals.
"It's a fair assumption to say there's not an abundance of deals coming our way in this environment, so unless we thought we had a better use to invest in the business, we would likely be looking to hold on to that cash to complete sizable [mergers and acquisitions]," said Chief Financial Officer Michele Allen. "That doesn't mean there's nothing out there. It just means that the chance of getting something done at any significant level of capital deployment over the next nine to 12 months is probably less likely in today's environment."
Wyndham ended the second quarter with $400 million in cash and approximately $1.1 billion in total liquidity, and with the free cash flow expected over the remainder of the year, the company plans to have "just over $600 million of cash to deploy," Allen said.
Barring any significant movement by the brands, likely targets for mergers and acquisitions include smaller regional brands in the midscale select-service or even upscale space, she said.
"From an M&A landscape perspective, we're looking for opportunities both domestically and internationally particularly in what we consider to be high-growth markets with high-demand generators," Allen said, adding "nothing is off the table."
"We believe that consolidation in the industry is inevitable, and size and scale matter. They matter now more than they ever have, and we expect that to continue," she said.
Wyndham Hotels & Resorts has 22 brands in its portfolio, including an extended-stay brand that launched in March under the working name "Project ECHO" — which has 72 hotels under contract. Across its brands, the company has approximately 9,000 hotels and 818,900 rooms in 95 countries — mostly in the economy and midscale segment, but also including upscale, lifestyle and extended-stay properties.
Any acquisition to grow the portfolio would have to be a strategic fit, Wyndham CEO Geoff Ballotti said.
Radisson Hotel Group's Americas portfolio, which Choice Hotels International announced in June it would acquire, did not meet Wyndham's criteria, Ballotti said.
"Our teams stay very close to everything that's out there, both domestically and internationally, including Radisson, which we've looked at multiple times over the years. It's just never been for us," he said.
"If you think about Radisson in terms of their portfolio, three-quarters of it here in the Americas is their Country Inn & Suites brand, which competes directly with La Quinta, which has two times the footprint. The other fourth of that portfolio here domestically is their full-service Radisson and their upper-upscale, full-service Radisson Blu product, which competes with our upscale Wyndham and upper-upscale Wyndham Grand hotels. Both Wyndham and Wyndham Grand are two very strong brands for us that are also performing very well. ... It's not brands that we've ever felt we could grow more than our brands, which compete with Radisson in those segments."
Wyndham has also recently sold off all of its owned real estate and exited select-service management agreements, and an acquisition of Radisson would have added both.
The company's most significant brand acquisition in recent years was La Quinta, which added more than 900 franchised hotels to the Wyndham portfolio when that $1.95 billion deal closed in May 2018. Prior to that, the company acquired the AmericInn brand in October 2017, adding 200 hotels; and Dolce in February 2015, adding 24 hotels.
At its founding as a division of Wyndham Worldwide in 2006, Wyndham Hotel Group included brands Wyndham, Days Inn, Howard Johnson, Ramada and Super 8. The Wyndham brand was created in 1981. In 2008, the company acquired the Microtel and Hawthorne Suites brands for $150 million from what was then the Global Hyatt Corporation. Tryp joined the brand family in 2010, bought from Spanish firm Sol Meliá Hotels & Resorts. Its acquisition of Latin America-based Fën Hotels in 2016 added two brands to its portfolio — Esplendor and Dazzler in the boutique segment.
The company has also grown its footprint organically, which has included launching in 2017 its first soft brand, the Trademark Hotel Collection, and building, buying and converting hotels to its existing brands.
On July 21, Wyndham announced a partnership with Palladium Hotel Group that will add 14 resorts to its all-inclusive Registry Hotels Collection brand.
"As part of this strategic alliance signed just this month, another 5,000 franchised rooms will be added to our portfolio throughout the remainder of 2022, bringing the total to 15 upper-upscale and luxury Palladium hotels and resorts in Mexico, Brazil, Jamaica and the Dominican Republic joining our Registry Collection and Trademark Hotel Collection by Wyndham," Ballotti said.