DALLAS—Aimbridge Hospitality and Interstate Hotels & Resorts, the two largest hotel management companies, are merging to form a powerhouse—one with properties in nearly 50 states, a massive reach internationally and the ability to scale quickly.
“The discussions really heated up 90 days ago,” said Dave Johnson, co-founder and CEO of Aimbridge. “Mike and I dug deeper into the dialogue and what the merger would entail. We just felt like the companies coming together would provide tremendous benefits for our owners and our employers.”
Kohlberg & Company LLC’s interest in selling Interstate in July 2019 moved the discussions between Aimbridge and Interstate along. “Advent [International] brokered the idea as it had acquired a majority stake in Aimbridge earlier this year,” said Mike Deitemeyer, president and CEO of Interstate. Advent will assume majority ownership of the combined entity.
Once completed, Johnson will serve as CEO of the combined company; Deitemeyer will become global president and oversee global operations and corporate disciplines.
“Mike and I have a 20-year history, going way back to his Omni days,” Johnson said. “We’ve been great colleagues professionally, but we also became very good friends personally. I have the utmost respect for him. He’s a fantastic leader and what he’s done at Interstate in three years has been phenomenal. His initiatives have led to amazing results. I have no doubt that we will work together in managing a world-class entity.”
Both companies consider the deal to be strategic, as the transaction is expected to spur growth opportunities.
“The combined capabilities that come with that scale would drive down cost, improve margins and create better opportunities for career advancement,” Johnson said. “We would also be the leader in data and data aggregation. Together, we’ll be able to offer opportunities to our employees all over the world.”
The financial terms of the transaction weren’t disclosed. The deal is expected to be completed by year-end 2019.
“Once the transaction is final, we’ll make a thoughtful approach to integrating the companies, combining best-in-class organizations, innovation and technology to create a leading, world-class organization,” Deitemeyer said. “Our combined company will be an employer of choice, with more than 60,000 team members worldwide delivering the best service and with new avenues for career development. We’re enthusiastic about what we can achieve as one team, building on the great talent we have.”
But it’s not just the talent that the executives see opportunities for. “Bringing Aimbridge and Interstate together will create tremendous opportunity—to innovate, to grow and to better serve our hotel owners,” Deitemeyer said. “By joining forces, we’ll have the scale, resources and global reach to add even more value for our hotel owners. Once combined, we’ll also be operating nearly every brand, and that will bring advantages of its own.”
The combined company will manage a portfolio of more than 1,400 branded and independent properties in 49 states and 20 countries.
“Our companies’ portfolios (with close to 100 hotels under development) complement each other well, with Aimbridge having strength in Canada and the Caribbean, while Interstate has depth in Europe—specifically, Eastern Europe,” Johnson said. “With this merger, our groups can take advantage of opportunities in the other’s strongholds to meet pent up demand from development partners.”
Internationally, the deal enables the combined company to provide “even more robust sales, marketing, e-commerce and revenue management infrastructure, enhanced data and analytics capabilities, and a global platform that will position us for further expansion in the Americas and Europe,” Deitemeyer said.
The merger complements portfolios not only internationally but elsewhere.
“A large part of creating this new combined organization is the opportunity to optimize how we do things—as a third-party management company, it’s about systems and people,” he said. “It will be the right set of circumstances to find innovative solutions. Attracting the best talent with so many opportunities to grow becomes exponential.”
Prior to announcing the deal, both companies reached out to their owners. “We wanted to make sure that our key owners—some of which we both operate for—heard about the merger directly from Mike, myself or one of our senior leaders,” Johnson said.
The message presented to owners during this time was twofold.
“First, when it comes to the folks who touch their assets daily—the VP of operations, the VP of sales, the director of revenue management—there will be no change whatsoever,” he said. “Second, we said that when we begin the integration, post-closing, none of those individuals will have anything to do with the integration. We’ll have an independent integration team, so we have zero disruption at the asset level.”
To merge the companies’ cultures, both companies are taking a collaborative approach. “We want to take the best of what Interstate is doing and the best of what Aimbridge is doing and learn from each other to create an even more powerful organization,” Johnson said. “Our number-one priority on both sides—and even more when combined—is how to create better value for our owners. If we do that, if we deliver to our owners, it makes growth easy.”
Even though the companies approach hotel management differently in some areas, the combined company will move forward with the best practices from each. “It’s really about finding winning solutions that will provide improved margins for our owners and the greatest opportunities for our people,” Deitemeyer said. “Once the transaction closes, we’ll be taking this journey together that will result in creating a whole that is even stronger than the sum of its parts. It’s something Dave and I are looking forward to—that process of bringing two companies together.”
“By joining forces, together we will have the scale, resources and global reach to reinforce our leading offerings, continue delivering superior performance for our hotel partners and owners, and create positive experiences for our guests,” Johnson said. HB
What’s the larger impact of the merger?
How will the merger impact the management landscape? Hotel Business reached out to executives to get their take.
“I expect we will see outcomes similar to those on the franchising side with the Marriott/Starwood merger, where Hilton and others are working to grow their brands in an effort to stay competitive,” said Mike Hines, chairman, HP Hotels. “A good analogy would be a mega-retailer like Walmart or Costco moving into a small town. The large entities have considerable business leverage against the smaller, independent retailers. So, it is only natural to ask if the new Aimbridge-Interstate entity is going to change the paradigm of pricing in the hotel management world. We don’t know yet what fees Aimbridge-Interstate will be quoting for new business, and that is certainly of concern to smaller management companies.”
Rick Takach, chairman/CEO, Vesta Hospitality, noted that this move is in line with the hospitality sector moving toward consolidation. “The industry is really made up of small- and medium-sized companies,” he said. “There may be some consolidation among those entities.”
But, they noted, there’s room for management companies large and small. “In some cases, owners and investors are more comfortable working with a large entity like Aimbridge or Interstate,” Takach said, adding that others prefer smaller operations. “There are advantages in dealing directly with the principal and senior leadership of a smaller management company who are deeply knowledgeable of the investment and operating parameters of an asset and who are focused daily on that asset.”
“Overall, this merger will drive us to further cultivate the positive differences that we can offer to ownership, which we welcome,” Hines added.