By Alicia Hoisington
Amid a wave of consolidation in the hotel industry, RLHC recently closed on an acquisition of Vantage Hospitality Group. Executives cite economies of scale, shared goals, similar cultures and a marriage of strengths as the many reasons for the merge.
“First and foremost, it was providing us some scale and ubiquity as an overall system, which helps create more opportunities for the entire system,” says Greg Mount, CEO of RLHC.
The acquisition grows RLHC’s franchised system to more than 1,100 hotels with 73,200 rooms, from its previous 113 hotels and 14,200 rooms — a nearly 416 percent increase in room count.
Additionally, Mount says the acquisition gives RLHC a strong foothold in the economy segment, “with a team that has created an organizational culture that’s very in tune with that segment.”
Roger Bloss, former president and CEO of Vantage and now executive vice president of global development for new parent company RLHC, agrees. He says that although Vantage excelled in economy, it lacked in the upper-scale segments. Bloss says technology played a huge part in the decision.
“We looked at what the opportunities were as phenomenal technology ability and the enhanced digital systems that [RLHC] had,” Bloss says.
Bloss says that Vantage executives realized the company would never be a leader in technology, but rather a strategic partner. As discussions and voting during owner conferences took place, Bloss says it was clear that members didn’t feel marketing dollars were best spent on the ever-evolving world of revenue management and channel management.
“They felt that those things somewhat took a backseat to distribution and how we spent our money on distribution,” Bloss says. “And on the other side, they really realized that today is about mobile.”
That huge undertaking, from both a financial and culture standpoint, was something Bloss says members didn’t want to necessarily focus on, but executives knew it would be key for future success.
“[RLHC] over the last couple of years has done a phenomenal job creating that, and that was really the idea behind this,” Bloss says. “If we could take what [RLHC] had, which was what we needed, and bring it to our members at relatively zero cost, then they would be able to jump forward in the technology and the distribution world.”
He says that the merger with RLHC was the “ideal situation” for Vantage and its members, as the two companies share common goals and similar cultures.
Spokane, Wash.-based RLHC paid an initial price of $23 million in cash and 690,000 shares of the company’s common stock for Coral Springs, Fla.-based Vantage. Additional aggregate compensation of up to $7 million in cash and an additional 690,000 shares may be earned contingent upon the achievement of certain performance metrics at the first and second anniversaries of the transaction, according to a news release announcing the acquisition. The additional consideration includes a $1-million minimum cash payment on the first and second anniversaries.
Vantage leadership will remain under new parent company RLHC. Bernie Moyle, who along with Bloss has been at the helm of Vantage, will also move over as chief operating officer at RLHC.
What the merger means for owners
Although the executives declined to give direction on what will happen to Vantage’s brands, citing they continue to work through the details, they did provide insight on how the acquisition will affect Vantage members.
A big plus to members is the ability to move within more brands in the system, Bloss says.
“Many of our owners have put their properties in the position to move up the scale,” he says. “There really wasn’t a brand for us in the interim for them to be able to move up.”
With the merger, Vantage members now can enjoy scale of properties, from budget to upscale, Bloss says. Some properties also will fit into the boutique segment, he says, and the merger gives members that option now.
“Many of our owners are multi-property owners within our system, and over the last decade or so, a lot of our owners have gone from economy lodging to midscale or upscale lodging, but they’ve always liked the Vantage culture and how we’ve done things,” Bloss says.
“Being able to do that under the [RLHC] umbrella gives them a lot more opportunity to position their property properly,” he says, adding that more choice gives owners the ability to adapt to changing markets.
“The resources that [RLHC] could add to our resources makes us very competitive in all segments, instead of just in the economy lodging segment,” Bloss says.
He says that many owners have been able to move up the scale to Vantage’s Lexington brand. That brand works on a different technology platform, using more revenue management practices, than some other Vantage economy brands, Bloss says. But now as owners have more freedom to move within a larger system after the acquisition, doors are open for more sophisticated technology, ready for a new generation of hotel owners.
“Over half of our hotels are owned by Asian Americans, and they are now coming into the baby booming years. Their kids are coming out of college, and they want to pass these things on to their college kids,” Bloss says.
The next generation of hotel owners comes into the industry with technology on their minds, he says. The merger with RLHC and its platforms provides owners with cutting-edge technology and revenue management systems while keeping intact a familiar culture to original owners, Bloss says.
Strategic about distribution
In August, RLHC announced a partnership with Expedia. Guests booking RLHC hotel rooms on Expedia would be able to book at loyalty member rates. To book at the member-only rate, non-members would be required to sign up for RLHC’s Hello Rewards loyalty program.
Although the partnership may have raised some eyebrows in the industry, the executives say it’s a purely strategic move.
Bill Linehan, executive vice president and chief marketing officer at RLHC, says the strategy is one owners and the overall organization can benefit from.
“Within any marketplace, the marketer’s objective is really to capture as much share as you can while reducing cost,” he says. “Since our loyalty program is structured very differently than most points-based systems with published tiers, we can extend it to the OTAs.”
Linehan says RLHC receives many other benefits from the partnership that help to improve market share and capture rate. For example, hotels now appear in the top 10 results and are on the top of the fold on Expedia’s website, which means more eyeballs on properties. Ads that link to RLHC’s direct channel also appear on Expedia’s site.
When guests book with Expedia at the loyalty member rate, in addition to instantly being enrolled in Hello Rewards on the Expedia channel, their email address is sent to RLHC—data that is not typically shared by the OTA with hotel companies. The step of signing up for the loyalty program is where Linehan says he sees many customers toggle over to RLHC’s direct channel to enroll.
“Once we have you in our system, we start communicating and building more of a relationship with you and offer special rates that are coupon-based only with a code,” Linehan says. “Those are for repeat business. So, we’re really using this as a customer acquisition tool.”
Since the launch of the partnership, he says three-quarters of the new members came directly to RLHC after Expedia.
“It proves that consumers do click around. We know that on average the consumer will look at various sites upward of 21 times,” Linehan says. “The idea is to be omnipresent with your information.”
Mount says that to ignore an entire marketplace, especially one that spends billions of dollars to acquire customers, would be poor strategy.
“The OTAs are about 54 percent of the total marketplace,” Mount says. “They spend about $6 to $7 billion in marketing. For any hotel company, you’re not going to outspend these guys.”
And he says oftentimes it’s not necessarily the brands eating the cost during war on OTAs, but the owners who suffer due to heavy discounting practices.
“Unless you are Marriott, Starwood, Hilton, maybe Hyatt, there’s no way that you’re not still getting bookings through the OTAs. What ends up happening is you’re now discounting rates so heavily to try to combat that, and the person who pays for that discount is the franchisee,” Mount says.
“I think it’s something that people have to understand a little bit better,” he adds. “If 50-plus percent of the marketplace likes to use their systems for booking, you have to respect that.”
Linehan agrees, comparing the practice to the retail industry.
“The retail industry started off as bricks and mortar, and then they all went to having their own online storefront with their dot coms, and then they’ve also gone to mass department stores as well as mass merchant discounters,” he says. “It’s all about managing your inventory and your pricing across all those various channels, and you can increase your sales. That’s exactly what we’re doing.”
The result? RLHC has seen increases in three primary metrics: market share from the channel; loyalty membership numbers; and cross-brand utilization.
“They are spending more with us,” Linehan says. “And the more we can do with them, the more we can engage with them.” ■
The RLHC acquisition of Vantage is one wave in a sea of hotel consolidation over the past 12 months. Consolidation recently entered the industry with a bang in November 2015 when Marriott International announced it would acquire Starwood Hotels & Resorts Worldwide.
That $13-billion deal, which created the world’s largest hotel chain with a system of more than 5,700 hotels and 1.1 million rooms, closed on Sept. 23.
Greg Mount, CEO of RLHC, says the industry is ripe for consolidation for several reasons. But at the forefront of those reasons is that some larger companies have struggled to find ways for continued growth.
“You’re starting to see the accretive value of some of these M&A opportunities,” he says. “From that standpoint, the public markets are rewarding some of these companies for making some of these transactions and looking at these consolidations as a way of continued growth.”
While he admits that the Marriott and Starwood deal is perhaps on a different level, he says some other companies take this strategy. He cited Wyndham Worldwide’s recent announcement that it would continue to look at M&A opportunities.
For its part, Wyndham Hotel Group acquired Dolce Hotels and Resorts in February 2015 for $57 million. Most recently, on Oct. 12, Novasol by Wyndham Vacation Rentals announced it had acquired Belgium-based Ardennes-Etape.
“I think that you’ll see some of those brands do that because that may be their only opportunity at this point,” Mount says.
Another big acquisition for the industry came in the form of AccorHotels taking over Fairmont Raffles Hotels International (FRHI). The $2.7-billion acquisition closed in July, adding three iconic brands and 155 hotels and resorts to its portfolio.
For other companies, such as RLHC and Vantage, it’s more about a marriage of two complementary companies that can build scale due to similar culture and shared goals.
“We excelled so well in the economy sector but not in the upscale sector,” says Roger Bloss, former president and CEO of Vantage and now executive vice president of global development for new parent company RLHC. “Their strength is what we needed. … It just really was a nice fit. It was a company that shares a lot of the same values and has the same goals.”
Likewise, in January, Commune Hotels & Resorts and Destination Hotels merged to form a new entity. In September, the merged company’s new named was announced: Two Roads Hospitality. The Boulder-Colo.-based company, co-owned by Lowe Enterprises and Geolo Capital, has a little over 90 hotels in its portfolio.
Other recent hotel company acquisition activity includes:
- Beijing-based Anbang Insurance Group announced it would acquire Strategic Hotels & Resorts for $6.5-billion. As of press time, the deal has yet to close.
- In Sept., sbe shareholders approved the proposed acquisition of Morgans Hotel Group. The deal is valued at nearly $800 million.
- Chinese company HNA Group announced in April that it would buy Carlson Hotels for an undisclosed sum.