Skift Take

Sorry, Airbnb. Those who follow the vacation rental business closely had a hunch that the business would be gobbled up by private equity and they were right.

Just one day after releasing its fourth quarter and full year 2017 earnings results, Wyndham Worldwide has achieved one of its primary goals in pursuing its spinoff into two separate companies: selling its European vacation rental business.

Today, Wyndham Destination Network announced it has accepted an offer from Compass IV Limited, an affiliate of Beverly Hills, California-based private equity firm Platinum Equity, for $1.3 billion. The deal is expected to close in the second quarter of 2018 and is subject to approval by the European Commission and the UK Financial Conduct Authority.

Wyndham’s European vacation rental business immediately became a topic of interest when it was announced that Airbnb had made an offer to purchase it last year. However, as evidenced by this announcement, Airbnb was unsuccessful in its pursuit of the business.

The business, considered to be one of the largest collections of holiday rentals in Europe, comprises more than 110,000 properties spread out over 600 destinations in 25 different countries, and operates under more than two dozen brands. Those brands include, James Villa Holidays, Landal GreenParks, Novasol, and Hoseasons. The majority of the rental properties are exclusive to these brands because of property management agreements. The business, collectively, generates $750 million in annual revenue and $130 million in earnings before interest, taxes, depreciation, and amortization.

The vacation rental business has seen increasing interest in the past year among major hospitality companies. Last year, for example, Paris-based AccorHotels purchased Travel Keys and Squarebreak, combining them into their luxury alternative accommodations provider, Onefinestay. And last year, Airbnb purchased Luxury Retreats.

In August, Wyndham Worldwide CEO Stephen Holmes first announced the possibility of selling off the European vacation rental business as a major part of the company’s plan to split itself into two entities: a company focused on hotels and another focused on vacation rentals and timeshares.

Holmes said, at the time, that the value of Wyndham’s European vacation rental businesses “is greater than when we bought them” and that the company has “received, over the years, indications of interest on the businesses” but that they “never thought it was the right thing to do” at the time.

Details on the Deal

As part of the deal, the European vacation rental business will also enter into a 20-year agreement with Wyndham’s hotel business, under which it will pay a royalty fee of 1 percent of net revenue to Wyndham’s hotel business for the right to use the by Wyndham Vacation Rentals brand. The business will also continue to participate in the Wyndham Rewards loyalty program.

The deal can be terminated if approval isn’t met by July 2. And if either party decides to call off the acquisition, they will pay the other company a $55 million break-up fee.

In recent years, Platinum Equity has been an active player in the European mergers and acquisitions market, and this deal represents the company’s second major European investment since last year when it bought Pattonair, an aerospace and defense supply chain service provider based in the UK. Platinum Equity has $13 billion of assets under management and a portfolio of more than 30 different companies.

“We are proud of the role we have played in building our European rental business into the largest manager of holiday rentals in Europe, with more than 100,000 properties in nearly 600 destinations,” Gail Mandel, president and CEO for Wyndham Destination Network said in a statement. “As part of Platinum Equity, we are confident our European rental businesses will be well positioned for long-term growth to continue to build upon the progress made over the years.”

In a press release, Holmes said: “Along with our planned separation and recently announced acquisition of La Quinta’s franchising and management businesses, this is another important step in the evolution of our company. Our European vacation rental brands deliver a great consumer experience, have high brand recognition in their markets and have delivered strong, consistent results. Our goal has always been to position them for continued long-term growth. We conducted a rigorous strategic review process that generated strong interest from multiple parties, and we were pleased to find the right buyer. We are confident that as part of Platinum Equity’s portfolio, these businesses will have a bright future and will provide significant opportunities for their associates and business partners.”

In that same statement, Platinum Equity partner Louis Samson said, “We have worked closely with Wyndham Worldwide to craft a divestiture solution that creates value for all sides and puts the European vacation rental business on a path for long-term success as a standalone business. We are excited to partner with the management team to ensure a seamless transition while preparing our plans to drive additional growth, both organically and through prospective add-on acquisitions.”

Wyndham Worldwide estimated that the tax obligations associated with the sale of the European rental brands will be less than 15 percent of the proceeds, and whatever money it gets from the deal will go toward debt repayment and funding its pending $1.95 billion purchase of La Quinta Holdings.

What About the Purchase Price?

“We view the transaction price of $1.3 billion as solid, given several analysts were forecasting purchase prices in the $900 million to $1 billion range,” said Skift Senior Research Analyst Rebecca Stone. “For some perspective, this represents about a 1.7X transaction multiple on sales, which compares to the about 7X that Expedia paid when it acquired HomeAway in 2015.”

So who gets what in this deal?

“This transaction really is a strategic decision for both parties,” Stone said. “The sale gives Platinum Equity an investment in a growing industry where it can provide focused attention on the business’ long-term trajectory and allows Wyndham to take one more step in the journey to strengthen its hospitality business.”

Wyndham plans to spin off its timeshare business and is in the process of acquiring La Quinta. Stone believes that with the flurry of moves, including the selling its vacation rental business in Europe, “Wyndham’s Hotel Group will be well on its way to creating a larger, free cash flow-generating operation ready to take on more asset-light acquisitions.”

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Tags: vacation rentals, wyndham, wyndham destination network

Photo credit: Wyndham has found a buyer for its European vacation rental business as part of its upcoming spinoff. Pictured is a press photo of a property at Landal GreenParks, De Reeuwijkse Plassen in Zuid-Holland, The Netherlands. Wyndham Destination Network

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