Continuing a wave of consolidation in the hotel industry, Wyndham Worldwide has agreed to acquire La Quinta’s franchise and management businesses for $1.95 billion to expand its presence in the mid-scale hotel market.
The hotel industry is still relatively fragmented, with market analysts estimating that the top hotel chains only account for about 33% of traditional hotel rooms worldwide.
But with Marriott International acquiring Starwood Hotels & Resorts for $13.3 billion and AccorHotels buying Fairmont Raffles Hotels for $2.7 billion, the pace of M&A activity in the sector has been picking up.
Wyndham’s acquisition of La Quinta’s franchised hotels adds another major brand to a portfolio that already includes Ramada, Days Inn, Super 8, and Travelodge. The deal is contingent on the completion of La Quinta’s spinoff of its owned properties into a new entity called CorePoint Lodging.
“This transaction builds on Wyndham Worldwide’s proven track record of acquiring companies that are a strong strategic and cultural fit, add highly-regarded brands to our portfolio and offer clear opportunities to drive shareholder value through growth, shared best practices and sharp execution,” Wyndham CEO Stephen Holmes said in a news release.
La Quinta is one of the largest brands in the hotel industry’s midscale segment, which, according to Moodys Lodging analyst Peter Trombetta, has been outperforming others in revenue per available room (RevPAR), a key industry metric.
The deal “adds a well-performing brand to Wyndham’s midscale and upper midscale hotel portfolio, two segments that have been growing RevPAR faster than any other segment outside of the economy segment,” he said.
La Quinta will also combine its customer rewards program of 13 million members with that of Wyndham, which has 53 million. According to SunTrust analyst Patrick Scholes, hoteliers are seeking to boost membership in loyalty programs.
“It goes along the theme that bigger is better,” he told Fortune.
Under the terms of the deal, La Quinta shareholders will receive $8.40 per share in cash and Wyndham will repay about $715 million of La Quinta debt net of cash. Wyndham is the world’s largest hotel company by number of hotels.