IHG to Acquire Kimpton Hotels & Restaurants

In a blockbuster move announced last night, IHG has agreed to acquire Kimpton Hotels & Restaurants for $430 million in cash. “It’s a great brand with enormous potential for growth both within the U.S. and globally,” said Richard Solomons, IHG chief executive officer, via conference call. “We know the company well, and given our focus on quality and preferred brands, it’s one of the few companies globally we’ve considered acquiring.”

The world’s largest independent boutique hotel operator, Kimpton is a fully asset-light business that manages 62 hotels in the United States, with 16 in the pipeline. It also operates 71 hotel-based destination restaurants and bars. The transaction will not include the purchase of any real estate.

“Kimpton had reached a stage where it needed a scaled plan to take it to the next phase of its growth, so when this opportunity came up, we knew we wanted to take a serious look,” Solomons explained. “There’s a really strong strategic fit in our brand portfolio. Together with Hotel Indigo and Even Hotels, the acquisition allows us to create a leading lifestyle and boutique business with over 200 open and pipeline properties.”

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The boutique hotel segment has been the fastest growing in the hospitality industry over the last four years, he said. Demand, supply, and RevPAR growth for boutique hotels in the United States each have significantly outperformed the overall industry.

From a financial perspective, Solomons described the transaction as “compelling,” with the expected doubling of EBITDA to $39 million for FY2017. The deal will be earnings enhancing in the first year and achieve returns above IHG’s cost of capital by year three.

In the call, Solomons praised the Kimpton management team in helping to drive the business. Following the transaction, the business will be led on a day-to-day basis by Mike DeFrino, current Kimpton COO, who will report to Solomons.

Kimpton Real Estate Investment Funds will continue to operate as a separate business that will make future investments in Kimpton branded hotels. Current Kimpton CEO Mike Depatie will focus on running the funds, which own approximately 30 percent of Kimpton’s existing and pipeline properties.

“Kimpton is a unique business with a strong track record of excellence in everything from design and innovative hotel concepts to financial and operational performance,” Depatie said. “It also has enormous potential for growth, both in its home market of the U.S. and globally. IHG is the ideal partner for Kimpton and has absolutely the right experience and specialist capabilities to help the business move to the next phase of rapid growth. Kimpton and IHG have many things in common, not least our shared values and approach to building brands. As an owner of a significant number of Kimpton hotels through our real estate investment funds, I am committed to developing additional Kimpton hotels, and I look forward to seeing Kimpton go from strength to strength as part of IHG.”

The transaction will be financed through existing cash resources and new debt facilities. It’s expected to close during the first quarter of 2015 upon satisfaction of certain customary conditions.