Skift Take

Hyatt’s M&A strategy might be best summarized as this: If at first you don’t succeed, try, try again.

Hyatt Hotels Corp. on Monday announced its intent to acquire boutique hotel company Two Roads Hospitality for a base price of $480 million.

Two Roads Hospitality’s boutique and lifestyle brands include Alila, Destination, Joie de Vivre, Thompson, and Tommie. The company was formed in September 2016 when Destination Hotels and Resorts merged with Commune Hotels + Resorts.

The addition of Two Roads to the Hyatt portfolio will add 85 properties to Hyatt’s existing portfolio of 750 hotels, and expand Hyatt’s footprint in 23 new markets, especially within Asia.

The deal, which is expected to close by the end of this year, may also include the possibility for Hyatt to invest an additional $120 million, based on the outcome of certain terms that will be defined after deal closes.

Hyatt said the total purchase price of approximately $600 million (base price plus contingent price) is expected to reflect an earnings before interest, tax, depreciation and amortization multiple of approximately 12 to 13 times stabilized 2021 earnings.

After the deal closes, Hyatt expects to combine Two Roads’ and its own lifestyle brands into a dedicated lifestyle division.

Hyatt: Hungry for Growth Through Acquisition

Hyatt Hotels has been on a particularly acquisitive streak over the past year, although most of its most recent investments have been in “adjacent spaces” such as wellness, beginning with the January 2017 acquisition of the Miraval Group.

Prior to that, in 2015, Hyatt was a leading bidder for Starwood Hotels & Resorts, which was eventually sold to Marriott International in 2016.

Most recently, Hyatt expressed interest in acquiring Spanish hotel company NH Hotel Group in a bid that competing majority stakeholder Minor Hotels Group CEO Dillip Rajakarier called “an embarrassment.”

Speaking at Skift Global Forum last month, CEO Mark Hoplamazian said he isn’t letting the failed bid distract him and his team from potential future acquisition and expansion. “Organizationally, there are so many intersections of loyalty, distribution, revenue management, and sales,” he said.

Hyatt’s desire for scale is motivated by the increasing consolidation taking place within the hospitality industry, and the fact that the company is relatively smaller than its other U.S. competitors which include Marriott International, which has 6,700 hotels, and Hilton, which has 5,400 hotels.

With the inclusion of Two Roads Hospitality’s brands and properties, Hyatt will grow from 750 hotels worldwide to a total of 835 properties. Adding more of Two Roads’ lifestyle brands to Hyatt’s portfolio not only gives the company more scale but also complements its acquisitions in the wellness space and its efforts to appeal to high-end travelers.

“The acquisition of Two Roads is an exciting expansion for us in a way that keeps our focus on the high-end traveler,” Hoplamazian said. “Like our brands, Two Roads’ brands are positioned at the high end of their segments. They have a strong following and unique properties with a vibe that is very complementary to our portfolio.”

He continued, “For example, the Alila brand furthers our focus on wellbeing, and the Tommie brand brings exciting opportunities for us to enter the micro-lifestyle segment. Here in our hometown, Cindy’s Rooftop at the Chicago Athletic Association was the only place my daughter wanted to go to before she departed for a year-long program away from Chicago.”

Hyatt also noted that the Two Roads investment is capital light, in keeping with the company’s increasingly more “asset-lighter” business strategy where it acts more like its hotel peers,  primarily driving revenue from management fees, rather than owning hotel real estate.

Private equity firm Geolo Capital and its partner, Lowe Hospitality Group, are retaining the real estate for Two Roads properties that they own; the deal they have struck with Hyatt is solely for the management company and brands. Geolo Capital owns 40 percent of Two Roads, and Lowe Family Trust owns 60 percent.

“Lest anyone think we are taking the money and running, we will be one of Hyatt’s largest customers,” Geolo Capital founding partner and director John Pritzker told Skift. “We retained the real estate. Our hotels are still going to be a part of the Hyatt system and I think that this is an expression of our confidence in the deal.”

Background on the Deal

Pritzker also said that, originally, he had no intentions to sell Two Roads Hospitality when the company received two calls of interest earlier this spring, one of which was from Hyatt.

But the economy and increasing consolidation taking place in the hospitality industry, and the fact that Two Roads had “limited” distribution had Pritzker and his partner, Bob Lowe, reconsidering offer from three to four different bidders.

“It was never our intention to sell, but one though I’d expressed to our partners was that … when the economy tanks, and it will at some point, I didn’t want to have nowhere to go,” Pritzker said. “We would have been a really small fish. We were pretty much the only ones left that were independent, and certainly one of the only ones that had an international presence and with the depth of brands that we have.”

Hyatt, regardless of the family connection — John Pritzker is the brother of Hyatt Hotels’ chairman of the board, Thomas Pritzker, and their father, Jay Pritzker, founded Hyatt back in 1957— was the best fit, according to Geolo’s Pritzker. Pritzker also noted that when Hyatt went public, he divested all of his shares to his family and has no financial interest in Hyatt Hotels.

“We need them, and they need us,” Pritzker said of Hyatt and Two Roads. “From a lifestyle perspective, they have Andaz, but this immediately catapults them  solidly in the lifestyle space, and they are forming a lifestyle division. Hyatt was small enough to accommodate what Two Roads is, and large enough to be benefited by it.”

What Comes Next for Hyatt and Two Roads

Pritzker said he plans to measure the success of the deal based on the satisfaction of Two Roads Hospitality hotel owners. He said that the owners he spoke to on the day the deal was announced have all expressed optimism with soon being a part of the Hyatt system, and having access to Hyatt’s technology infrastructure, loyalty program, marketing, and food and beverage sourcing.

As for Hyatt, Pritzker speculated that Hyatt will measure the success of this deal in terms of its growth in the lifestyle sector, as well as the Asia region, and integration of its guests into the World of Hyatt loyalty program.

Pritzker did acknowledge the potential for the loss of some corporate jobs at Two Roads Hospitality, but said, “Two Roads leadership is going to have to guide Hyatt in the integration process, and in the process, Two Roads people will see if Hyatt is something they want to be a part of …  they will find a way together.”

He did not have any information as to whether Two Roads Hospitality CEO Jamie Sabatier would remain at the company following the close of the deal.

With the proceeds from this transaction, Geolo will remain focused on real estate, as well as making investments in other sectors, including, perhaps, expanding into the branded residences sector.

One thing Pritzker does not intend to do anytime soon is to get back into the hotel management space, or to launch a new hotel brand.

“I’m done building brands,” he said. “We did all of this in nine years,” referring to Two Roads Hospitality. “We’re very proud of what’s happened and Hyatt, in my mind, was the perfect buyer of this.”

Skift Editor’s Note: This story has been updated to include Hyatt CEO Mark Hoplamazian’s additional comments on the transaction, as well as comments from Geolo Capital founding partner and director John Pritzker.

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Tags: hyatt, mergers and acquisitions, two roads hospitality

Photo credit: Terranea Resort in Palos Verdes, California, is one of 85 properties in the Two Roads Hospitality portfolio, which is being acquired by Hyatt for up to $600 million. Two Roads Hospitality

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