Choice Hotels Considers Further Acquisitions to Sustain Growth

Choice Hotels considers its recent acquistion of Radisson Americas to be a success and is open to pursuing additional mergers and acquisitions to keep expanding its hotel empire, according to executives speaking Tuesday during a second-quarter earnings call.

“We’ve certainly developed a pretty strong capability within the company to rapidly integrate brands,” said president and CEO Patrick Pacious.

In less than a year after saying it would acquire Radisson Americas for $675 million, Choice onboarded the nearly 600 Radisson Americas hotels into its reservations software platform and integrated the 2 award-winning loyalty programs.

Touting Merger Gains

The Rockville, Maryland-based hotel operator — whose 7,472 hotels span 22 brands, such as its flagship upper midscale brand Comfort and roadside midscale brands like Quality Inn — touted early merger gains.

• Choice Hotels said it is ahead of schedule in integrating Radisson Americas. It has gained $80 million in annual recurring synergies, exceeding targets sooner than executives expected.
• They have fully integrated the Radisson Americas loyalty program and reservations systems with Choice’s platforms in less than a year since the acquisition closed.
• Radisson Americas is already profitable in 2022, surpassing forecasts.

“This acquisition has created a step function change in the size of our business,” Pacious said.

Choice Hotels expects further benefits.

• “When we looked at buying this business, it was a business that was effectively underinvested in,” Pacious said. “We want to bring the value prop to these owners quickly.”
• Executives believe Choice’s software, marketing, and revenue management (rate-setting) software and practices will boost the performance of Radisson properties.
• “We were also able to leverage learnings from the Radisson Americas business division, which we believe will create significant value for our franchisees and guests,” Pacious said.
• One example Pacious cited was a new co-branded credit card deal, which he said was already exceeding initial expectations in generating profit.
• Choice Hotels is also confident the Radisson acquisition will speed up the growth of its upscale brands Cambria and Ascend through cross-selling them to Radisson guests.

Seeking Overseas Growth

Executives responded to questions from investment analysts about possible future mergers and acquisitions. They didn’t address recent rumors of a possible merger between Choice and Wyndham, the nearest comparable publicly held hotel company, and they said none of their forecasts for growth counted on any acquisitions outside of the Radisson integration.

Yet they did provide commentary on their thinking generally.

“We’re always looking for M&A [mergers and acquistions] that fits the 2 litmus tests that we talked about, improving the ROI [return on investment] for the owners and growing the brands for the shareholders,” Pacious said.

Executives look for acquisitions that will bulk up their brand portfolio into new segments or geographies to speed up growth. They said their $231 million WoodSpring acquisition helped them expand in extended stay, while buying Radisson Americas brought more upscale brands, boosted the membership in its loyalty program, and broadened its presence in North America.

While they see “whitespace” in the U.S., they also see “a lot of potential opportunities on the international front.”

“So when you look at a lot of potential acquisitions outside of the U.S., the product type may be different,” Pacious said. “It may not be something that you see here in the U.S. that doesn’t play well in the Americas region. There’s shorter stay, there’s rooms where they convert from a business traveler to leisure travelers. So there’s some different models out there on the international front that really work for certain international markets. But there’s also different product types that are lodging alternatives in the international side as well.”

Choice’s Strong Second Quarter

The hotel operator’s second-quarter earnings results were better than analysts expected on average and reflected even more optimism than the company’s bullish update three weeks ago.

• Choice generated a net income of $84 million from a year earlier on $227 million in revenue after deducting the revenue it collected and passed back to its managed and franchised properties.
• Revenue hit a quarterly record.
• The company raised its full-year forecast for net income to at least $298 million.

Hotel performance boomed

• Choice Hotels saw brands produce comparable systemwide revenue per available room — a key industry metric — of $60, or 20% above the figure in the same period in 2019.
• The gain was mostly driven by a 2.8% boost in its average daily rate at domestic properties and a modest rise in occupancy levels to above 60%.