Choice Hotels’ announcement this week that it was buying Radisson Hotel Group Americas is perhaps the first ripple of what could be a further shakeup at the very top of the hotel industry.
The deal will see Choice acquire the franchise business, operations and intellectual property of Radisson Hotel Group Americas for around $675 million.
Since early 2021 Radisson has effectively been two separate businesses: one operating predominantly in the United States, the other in the rest of the world.
The reason for this was the US government’s concern over the data protection of its citizens.The ultimate owner of the company is China’s Jin Jiang International.
The split made the US division an even more attractive takeover target for a rival like Choice, which will get an extra 624 hotels with more 68,000 rooms. The acquisition expands Choice’s presence in the upscale and core upper-midscale hospitality segments, particularly in the West Coast and Midwest of the United States.
David Katz, gaming, lodging and leisure analyst at Jefferies, said the deal was “strategically positive and executed at a positive multiple” with a number of benefits, including: synergies with Choice’s Cambria brand, providing a platform for international growth, increasing revPAR intensity and strengthening the loyalty programme.
The Benefits of Scale
The last few years have seen a race to scale at the top end of the hotel industry with Marriott and Accor in particular making some serious moves. Everyone is looking to add to their portfolio – if the price is right.
Not only will Choice be increasing its presence in the upscale and upper-midscale segments but it will add more than 10 million Radisson Americas loyalty members, which as Morningstar’s senior equity analyst Dan Wasiolek notes, adds an “an incremental incentive for third-party hotel owners to join the operator’s platform to tap into this demand channel”.
Much of the analyst coverage of the deal notes the attractive cost of the acquisition with Choice paying via cash reserves and a credit facility.
"The purchase by Choice Hotels International of the franchise business, operations and intellectual property of Radisson Hotel Group Americas for $675m is the first big branded deal we have seen since travel restrictions have eased and indicates that the appetite of owners for a recognisable flag over the door has not abated. With trading still choppy, many are seeking the sanctuary of one of the big flags and Choice knows that, to secure the largest pipeline possible, it must offer the widest range of brands it can,” said Alex Sogno, founder of Global Asset Solutions, which provides hotel asset management, and hotel investment banking.
What About the Rest of Radisson?
In the joint press release announcing the deal there understandably wasn’t much talk about what would happen to the rest of the business. However, CEO Federico González did say that Radisson was aiming to double its portfolio in EMEA and APAC by 2025.
Those markets represented 671 hotels/132,000 rooms versus just 622 hotels/68,000 rooms in the Americas region, according to data up to the end of March 2022.
While González’s comments imply the non-Americas Radisson is focused on growing at least in the medium term, perhaps owner Jin Jiang will be looking to cash in.
As C. Patrick Scholes, managing director - lodging and experiential leisure equity research at Truist Securitis noted: “we would not be surprised if the non-Americas group may be a potential acquisition target, especially given the high-barrier-to-entry exposure in Scandinavia, sub- Saharan Africa, etc.”
Jin Jiang’s collection of hotel brands, which also includes the Louvre Hotels Group, put it second in behind Marriott in terms of worldwide number of rooms, according to MKG / Hospitality ON Ranking.