Choice Hotels should be able to make good use of Radisson's Country Inn brand. Odds favor this transaction's long-term success. But the pact between frenemies Choice and Radisson is not without risk.
Early reviews seemed positive for Choice Hotels International’s planned acquisition of the core assets of Radisson Hotel Group Americas, announced on Monday. The Maryland-based hospitality franchisor plans to acquire the franchise business, operations, and intellectual property of the Americas division of Belgium-based Radisson Hotel Group, for approximately $675 million.
The deal is unusual in its construction. Choice will run about 600 hotels in the Americas. But it will consult with Radisson Hotel Group on the “growth, continuity, and success of the brands.”
“It’ll be fascinating to see how these players will be cooperating in the Americas but competing with each other everywhere else,” said Baron Ah Moo, managing director, head of U.S., PKF Hospitality Group.
Looking ahead: If Brussels-based Radisson is acquired someday, its new owners might cause complications for Choice.
Brand Float or Brand Bloat?
For now, the deal brings nine new brands to Choice. Some analysts have questioned if Choice will keep all of them. But there’s no official talk of culling brands.
“The acquisition of some of the industry’s most recognized brands extends Choice Hotels’ customer reach in the upscale segments and enhances our presence in the core upper-midscale segments,” a Choice spokesperson said in response to a Skift query.
Yet some brands seem to be in a firmer position than others, according to observers.
“If you’re an owner of a Country Inn & Suites, this deal probably means more occupancy and better rates,” said Sid Narang, the managing principal at Crescent Capital Ventures. “But if you own a Radisson Blu or Radisson Red, will Choice drive higher rates?”
The deal includes 453 Country Inn properties, and there’s a lot of overlap between Country Inn’s audience and the audience of most of Choice’s brands.
Choice’s stated plan to go further upscale is where things may get bumpier.
The Choice business plan is that it can do a better job of driving net operating income out of the same properties. Its system includes a giant loyalty program that drives direct bookings, dominance in the corporate travel and group markets, technological expertise for tasks like revenue management (rate setting), and the ability to negotiate volume discounts and haggle lower commissions from the online travel giants.
“With all this in mind, Choice is the stronger brand [than Radisson Hotels Americas] in every respect,” Starkov said. “And it’s survival of the fittest out there.”
Yet a repeated theme in Choice’s statements about the deal is its desire to go “upscale.” Expanding beyond limited service to other concepts can be harder than it looks, some experts said. Supporting a lifestyle brand, like Radisson Individuals or Radisson Red, may require different mechanisms for marketing and service to compete with others in the space, such as Marriott’s Moxy, Hilton’s Signia, or IHG’s Kimpton. Choice’s own Cambria has still to prove itself here.
“Many people seem to think that all a hotel group has to do to enter the ‘lifestyle’ category is add fancy furniture,” said Narang, a former acquisition and development leader at SBE, Starwood, and W.
“But the harder part is getting the guests to come and then come back,” Narang said. “You have to market at the right touch points with the right messages, and you have to staff your corporate sales and marketing teams with people who breathe the culture of lifestyle.”
Growth and Debt
Expansion is the deal’s overall theme, adding 8,000 hotels in Radisson’s pipeline to Choice’s.
“I’m looking forward to the months ahead as we work on integration and achieving our long-term strategy of asset-light growth in higher revenue travel segments and locations,” said John Rau, a senior analyst in corporate development at Choice via LinkedIn.
Choice has the capital to fund the deal thanks to $527 million of cash on hand, plus revolving loans.
The deal got a positive nod from S&P Global. The ratings agency acknowledged that the deal would elevate the ratio of Choice’s adjusted net debt to nearly three times its earnings before interest, taxes, and depreciation. That debt level won’t prompt a credit downgrade, S&P Global said.
Choice has said that its policy is not to go much higher than that in debt load. So this may be the last large acquisition for Choice for a while.
One brand with a possibly uncertain future is Radisson Inn & Suites. Two months ago, Radisson Hotel Group Americas brands launched it as its first limited-service concept for urban markets. The brand is the metropolitan counterpart to Country Inn & Suites by Radisson, offering a more urban look and feel. But it also could be a direct competitor to some of Choice’s own brands.
The sale to Choice should improve the chances of Country Inn and at least some of the other eight brands.
“Radisson in North America hasn’t had a chance to make a mark, partly because of a revolving door at the leadership and business development levels,” Narang said.
If Choice is successful, the deal may help give further momentum to the franchising movement.
Already about 70 percent of hotel rooms in the U.S. are branded, and roughly half in the U.K. are branded, but the rest of the world is full of independents.
“The Choice acquisition of Radisson is part of the consolidation avalanche that we will witness in the post-Covid era,” said Max Starkov, an industry consultant.
Starkov anticipates more mergers because of technological pressures. Some brands stand apart for having better “hotel tech stacks,” meaning that their software and hardware drive efficiencies through labor cost reduction, revenue gains through best-in-class digital marketing, and lowered distribution costs through more sophisticated loyalty programs.
The tech savants will be acquiring hotel brands that have a sub-par hotel tech stack, digital presence, and loyalty programs, he said.
“Post-crisis developers, owners, and managers will flock in droves to the strong hotel brands/major chains,” Starkov said.
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Photo credit: A Radisson Red hotel. Source: Radisson Hotel Americas.