A membership model involving more than 1,100 hotels is one of the attractions for Red Lion Hotels Corporation in its proposed acquisition of Vantage Hospitality Group for more than $29 million in cash, stock and incentives.
SPOKANE, Washington—The membership model embraced by Vantage Hospitality Group since its founding in 1999 won’t go away now that the company has become the latest consolidation conquest in the hotel industry.
Red Lion Hotels Corporation on Tuesday joined the likes of France’s AccorHotels, China’s HNA Tourism Group and the U.S.’s Marriott International—each of which have closed or are in the process of closing acquisitions this year—when it made a bid to gobble up Vantage.
Greg Mount, RLHC’s president and CEO, told Hotel News Now the model that allows for annual membership contracts, an array of elective brand standards that Vantage refers to as “freestyle lodging” and a voting voice in the direction of its brands are important components of the deal that was announced late Tuesday.
Greg Mount, Red Lion
“Overall, it’s a much better model and one that owners or franchises can easily interpret, understand, know their economics and make their decisions,” Mount said. “If anything we’ll continue to accentuate it.”
According to Mount, Red Lion is familiar with the membership-model concept. The company currently uses a similar model for its Hotel RL brand—an offering the company refers to as a casual upscale brand. That makes the decision to maintain the model for Vantage’s brand collection easier.
“In the economy sector, it’s probably the right way to approach it,” he said, adding that while the membership system can set limits on financial growth during good times, it also protects a company when the economy isn’t performing well.
RLHC entered into the definitive agreement to acquire the global brands and brand operations of Coral Springs, Florida-based Vantage for an initial aggregate price of $23 million in cash and 690,000 shares of Red Lion common stock, which closed Wednesday at $7.89 per share—up 13.3% from the previous day’s close.
Additional aggregate compensation of up to $7 million in cash and an additional 690,000 shares may be earned contingent upon the achievement of certain performance metrics at the first and second anniversaries of the transaction. The additional consideration includes a $1 million minimum cash payment on the first and second anniversaries.
Mount declined to provide any details of the financial arrangements, saying that the deal is not unique in its structure.
“Most deals like this include an earn-out component,” he said.
The acquisition includes Vantage’s Americas Best Value Inn, Canadas Best Value Inn, Lexington by Vantage, America's Best Inns and Suites, Country Hearth Inns, Jameson Inns, Signature Inn and 3 Palms Hotels & Resorts brands. In addition to Hotel RL, Red Lion’s brand stable includes the Red Lion Hotels, Red Lion Inn & Suites, GuestHouse and Settle Inn brands. Red Lion was founded in 1959.
The agreement expands RLHC's hotel network to more than 1,100 hotels comprising more than 73,200 rooms from 113 hotels (14,200 rooms). Red Lion acquired the GuestHouse and Settle Inn brands in April 2015.
“It’s really an opportunity for us to take what we think are some good brands that have good scale and strength in the economy segment and acquire a team that has been very successful in the economy segment and bolt them to what I think is the leading-edge technology and e-commerce platform,” Mount said. “It gives us a ubiquity in scale that allows us to compete in a different stratosphere and grow.”
Red Lion’s RevPak guest management system allows hotel owners and operators to manage everything from field marketing and CRM to pricing and revenue, according to the company. It socializes consumer requests, preferences and expectations with hotel operations and enables multichannel marketing by sending one-to-one and one-to-many campaigns based on customer behaviors and dynamic hotel operations.
The deal is expected to close during the fourth quarter of 2016.
Once it is completed, Red Lion will essentially have two divisions, with the Coral Springs office largely overseeing the Vantage brands. Some are expected to shift, though, with Red Lion’s Guesthouse and Settle Inn brands falling under the umbrella of the Coral Springs office, while Vantage’s Jameson and Lexington brands will be operated under the direction of the Spokane office, Mount said.
“(It will) allow people to do what they know,” he said, referring to the Coral Springs office as “heritage Vantage” and the Spokane office as “heritage Red Lion.”
Existing teams will stay intact, according to Mount. Roger Bloss, Vantage’s founder, CEO and president, will “head up the whole (economy offering) on a global basis.”
Mount said he is particularly pleased with Vantage’s presence in Canada. He said adding more than 30 properties in Canada is a big step for Red Lion—as is Vantage’s presence in Asia.
The acquisition, which began with initial discussions less than a year ago, might not be the end of Red Lion’s expansion efforts.
“It opens up the door to look at other opportunities,” Mount said.