From Marriott and Starwood to Gemstone Hotels and Benchmark Hospitality, it seems as though the list of consolidating hospitality companies is growing faster by the minute. When Red Lion Hotels Corp. (RLHC) announced in September that it closed on the acquisition of Vantage Hospitality, it grew nearly 416 percent in room count—and took its place alongside fellow consolidators. Here, Greg Mount, president and CEO of RLHC, details the intricacies of consolidation in franchising, and where he sees this M&A trend going in the new year.
In September, RLHC announced it would acquire Vantage Hospitality. Can you walk LODGING through the thought process behind that transaction? We’ve been growing ourselves organically with good success over the past couple of years, as we’ve repositioned the company to become more focused on procedure and business. We’ve also worked on our franchising and extending ourselves east of the Mississippi. We’ve continued to be opportunistic and we’ve followed that with the opportunity to extend our scale and ubiquity in the economy segment.
Since your franchised hotel network has grown to more than 1,100 hotels with this acquisition, how are you working to transition franchisees? Over the past few weeks, we have actually had 20 town hall meetings around the country where we have been able to bring in a large portion of the franchisees from around the United States and Canada. We meet with them and talk about the acquisition and about Red Lion, and at the same time provide them with a bit of a roadmap on how we’re going to move forward in working with the transition. It has been very well supported and the franchisees on the Vantage side have been extremely excited about the opportunities to leverage some of the technology and innovations that Red Lion has developed.
The industry has seen so much consolidation in the past couple years. Why do you think it has become such a huge trend in hospitality? If you look at the opportunities for growth, I think some of the bigger systems have run out in the key metropolitan statistical areas to really grow their platforms meaningfully. You’ve seen a number of the larger brands come out with a number of other brands to try and find ways to place another hotel in these markets, but I think they are finding it difficult. One of the things you are seeing, at least on the upper end, is larger companies that are for the most part public looking for ways to grow their system. One of the ways to grow their system is through mergers and acquisitions. Some of these larger hotel companies, for all intents and purposes, are kind of their own OTAs.
Do you think we will continue to see this trend? For companies, particularly public ones, to grow in a meaningful way, these kinds of opportunities are going to have to continue to be looked at. We told our shareholders that we are going to continue to look at them as well. The right consolidation with the right organization can make a lot of sense. Vantage provided us with the opportunity to take their company to the next level and to really merge with a group of brands that weren’t similar to ours. You will see those kinds of opportunities continue. It’s really based on finding the one that will work with your culture and your system of brands. There have been some examples of acquisitions that shouldn’t have occurred, and it’s a little clumsy. People have to be mindful of that.
Antitrust watchdogs are concerned about consolidation in many industries, but less so in hotels because franchisees are able to set their own rates based on local demand. Do you think having consolidation in the franchising world is less of a threat to competition than in other industries? If you look at the Marriott-Starwood acquisition, I think the consumer is actually one of the biggest benefactors in that transaction. If anybody gets impacted more, it’s probably the owners, that instead of having two of the street corners covered with a brand, now all four are covered with essentially the same system.