IHG Buys Kimpton Hotels For $430 Million

IHG has just announced that they’re acquiring Kimpton Hotels & Restaurants for $430 million.

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IHG/Kimpton takeover basics

Here are the highlights from IHG’s press release:

– IHG has agreed to acquire Kimpton Hotels & Restaurants (“Kimpton”) for $430 million in cash.

– Kimpton is the world’s largest independent boutique hotel operator and a sophisticated food and beverage operator.

– Kimpton is a fully asset-light business that manages 62 hotels in the most attractive cities and resorts in the US with a further 16 hotels in the pipeline. It operates 71 hotel-based destination restaurants and bars.

– Acquisition makes IHG the clear market leader in the boutique segment, the fastest growing segment in the industry.

– Highly complementary with IHG’s Hotel Indigo and EVEN Hotels brands; creates a leading boutique and lifestyle hotel business, with over 200 open and pipeline hotels across 19 countries.

– Significant opportunities identified for IHG to accelerate the growth of the Kimpton brand within the US and to launch it globally.

– Compelling financial rationale with Kimpton EBITDA expected to double by the end of 2017.

– The transaction will be earnings enhancing in its first full year and achieve returns above IHG’s cost of capital by year three.

Here’s what Richard Solomons, CEO of IHG had to say about the takeover:

“Kimpton is a well-established and highly successful business that has built an industry leading position in the US.  It has created a portfolio of world-class hotels and destination restaurants, and the distinctive and innovative Kimpton brand will fit perfectly into the IHG brand family.  Adding Kimpton to our portfolio of preferred brands creates the world’s largest boutique hotel business.

The acquisition is another step in IHG’s well-established asset-light strategy of investing in high-quality growth, building on a strong track record of developing iconic global brands.  We will use our scale, network of owner relationships, and powerful digital platforms to accelerate Kimpton’s growth both within the US and internationally.

The hugely talented Kimpton team will continue to be led by Mike DeFrino, currently Kimpton’s COO, and I am delighted to welcome all of Kimpton’s associates and owners to the IHG family. The culture and values of both companies are well aligned and Kimpton will bring a wealth of expertise and specialist skills to IHG.”

And here’s what Mike Depatie, CEO of Kimpton had to say about the takeover:

“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.  It also has enormous potential for growth, both in its home market of the US 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.”

Kimpton is truly a unique brand

While I could never really be loyal to Kimpton due to their lack of a footprint, Kimpton just does business differently. They’re a fantastic brand. They take great care of their employees, great care of their guests, and genuinely go the extra mile unlike any other mid-range hotel brand I’ve experienced. I mean, what other hotel chain would make a video like this? 😉

As a guest, you just can’t help but feel like they’re a really well run small business based on how awesome their employees are and how personalized the treatment is. And that’s despite the fact that they have 60+ properties. For example, one of the benefits of having top tier status with them is direct access to their CEO… and it’s something they’re actually serious about.

So in a way it’s sad that Kimpton is being taken over, since there’s no way they can maintain that personalized touch while joining the largest hotel chain in the world, in my opinion. They can certainly still have an edge, but I do think they’ll slowly gravitate towards the “norm” in terms of service.

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But the takeover also isn’t surprising. Like I said, Kimpton has a unique place in the market, and that’s something that’s compelling for a huge hotel chain.

The end of Kimpton Karma Rewards?

I think it’s safe to assume that long term this will mean the end of Kimpton’s Karma Rewards program.

Kimpton-Karma-Rewards

I actually learned about the takeover from a Kimpton email, in which they said “rest assured, this news doesn’t have any immediate impact to your benefits or how you experience Kimpton.” I think it’s safe to assume the emphasis there is on the word “immediate.”

Kimpton does have an extremely personalized loyalty program. For example, as a top tier elite you receive a beverage and snack of your choice, which is always such a nice thing to get when you arrive in your hotel room.

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Kimpton Inner Circle welcome amenity

I doubt the program will continue to be as personalized. I’d say most likely the program will just be merged into IHG Rewards Club.

I do hope I’m wrong, though I’m not sure how else it cold work in practice. For what it’s worth, InterContinental belongs to IHG Rewards Club but also has a separate Ambassador program, though it was my understanding that they were thinking of getting rid of that. So I doubt Kimpton Karma Rewards will stick around either.

Why hotel consolidation isn’t all bad

As consumers should we be excited about the buy out? Hotel consolidation is a bit different than airline consolidation. That’s to say that when airlines consolidate they often decrease capacity. Meanwhile when hotels “consolidate” it’s quite different. After all, most hotels aren’t actually owned by the chains, but rather the chains just have management contracts for the properties, which are owned by investment companies. Therefore it’s still in the chain’s best interest to expand as much as possible, especially in light of consolidation.

That’s to say that I don’t think having only three “big” hotel chains would be as bad for consumers as having only three “big” airlines, for example. Each of those hotel chains would still have a dozen hotel brands in their portfolio, with each property trying to maximize their own profits.

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Consumers: winners or losers?

If you’re strictly a Kimpton loyalist, I’d say this is almost certainly bad news. To some degree it’s inevitable that part of the “small chain” feel will disappear with the takeover. I’d expect the loyalty program to be less generous in some ways, if not just merged into IHG Rewards Club. And there’s no denying that Kimpton Karma Rewards benefits are much better than IHG Rewards Club benefits.

But there’s a silver lining as well. I’m actually excited about the merger. I wanted to be loyal to Kimpton, but they simply didn’t have enough properties for me to be able to do so. They have hotels in just 28 cities, and that’s not really enough for me to be loyal. But I love the properties, love the concept, and love the service.

If Kimpton becomes part of the IHG Rewards Club program I’d be much more likely to stay with them. I’d get a lot of value out of being able to earn and redeem points at Kimpton properties, not to mention being able to redeem free night certificates and qualify for promotions with Kimpton stays. Who wouldn’t want to make PointBreaks bookings at Kimpton properties, for example?

I could never do 40 nights per year with Kimpton (as is required for their top tier status), but I could actually see myself becoming more loyal to IHG partly because of Kimpton.

Bottom line

In general consolidation isn’t good for our hobby, but in this case I actually don’t think it’s totally bad news. While I think this takeover will water down the Kimpton experience somewhat, for my own travel patterns I actually view this as a positive.

How do you feel about the IHG takeover of Kimpton?

Comments

  1. Hi Ben,

    What IHG status do you think Kimpton Inner Circle (highest tier) will be matched to? I ask because IHG/Platinum is definitely inferior and I’m hoping they’ll extend IHG/Ambassador status as a goodwill gesture to Inner Circle members.

  2. @ Shanghai9 — I would guess just IHG Platinum, though I’m guessing it’ll be a while before anything happens, one way or another.

  3. As an Inner Circle member, I am not excited about the potential merger into the IHG loyalty program. After perusing the Facebook page of Kimpton, it is nearly universal disappoint in the upcoming merger. We’ll just have to wait and how much they gut Kimpton’s program.

  4. Very interesting indeed! A couple of observations/questions –

    1). This may be a case of the best defense is a good offense. About 9 months ago a rumor was floating around Wall Street that SPG had made an acquisition offer for IHG that was rejected by IHG as inadequate. As is the norm in the things, neither party was willing to confirm or deny the rumors. If, in fact, SPG had made a run at IHG, this acquisition by IHG may be an attempt by IHG to make itself immune to a hostile tender by SPG.
    2). I think Kimpton loyalty members are the likely long term losers in this acquisition. As Ben noted, the IHG Rewards is a mediocre loyalty program compared to Kimpton’s for Inner Circle members. They can only hope that IHG maintains the Inner Circle as a full-fledged stand-alone program – which is highly doubtful long-term.
    3). Does this create synergies or head-winds for IHG’s Intercontinental brand? At first blush, I think it create synergies by expanding IHG’s high-end foot print. But long-term I’m wondering about brand confusion/dilution. Ben, you’re the marketing guy – your thoughts?

  5. @ KahunnaTravel — That’s a great question. I wouldn’t go so far as to say that Kimpton/InterContinental create synergies, though I do have two general thoughts in that area:
    — InterContinental lacks an identity. Their hotels range from really nice to shabby chic to just plain drab. Are they competing with St. Regis? Park Hyatt? Sheraton? Westin? Especially in this day and age where each major chain has more brands, InterContinental needs to do something to explain their vision.
    — IHG desperately needs more full service properties, so this is a great addition for the portfolio. There’s a huge gap between InterContinental and the next chain in the portfolio, so I think this fills a niche. If only there were more Kimpton properties.

    So at the end of the day I’m not sure there are really synergies between Kimpton and InterContinental, though it certainly at least gives them a fighting chance in some markets against what the competition offers.

  6. Ben, have you ever once asked yourself why you feel compelled to sugarcoat consolidation? Whenever there’s a merger or acquisition in play you seem to run out in front of it trying to soften the blow and sell your readers on some random potential benefit. History shows us that consolidation sharply reduces options and benefits while raising rates, fees, and penalties with very little in the way of consumer benefits. History also shows us that you’ll no matter how bad it looks you’ll always be there to spin every negative development into a wash.

  7. Dax, have you ever once asked yourself why you feel compelled to continue reading a blog that angers you so much?

  8. Neil, it isn’t necessarily anger just because he doesn’t agree. Dax often raises good points that nobody else does.

    I agree that consolidation is generally a bad thing for the consumer, and not because of anything to do with capacity like an airline. And I agree that Lucky often paints a positive picture on negative corporate maneuvering. Maybe that’s just his personality to put the best light on things, but sometimes it comes across as apologist.

  9. @ Dax — Let’s talk about the airline industry first. I don’t think I’ve *ever* sugarcoated airline industry consolidation. It sucks,and it’s not good for consumers. It leads to a reduction in capacity and that’s bad. Period.

    That being said, I’ve certainly criticized and complimented the way it has been carried out. Once a merger happens, there’s a good and bad way to execute it. So I’m sorry if me complimenting the execution was perceived as me sugarcoating consolidation. But in my life in general I try to avoid thinking too much about things that are outside of my control. So rather than writing “damn you, industry, for consolidating,” I like to look at the way it’s being consolidated. Since the former is a done deal.

    On the hotel front, how am I sugarcoating the situation? I’m saying it likely sucks for people that are loyal to Kimpton, but for people like me it’s good news. Because I like Kimpton properties but don’t presently stay at them because they don’t have enough properties. I’ll stay at more of them once they’re taken over.

    Is that not a valid point from my perspective?

  10. Well, this is certainly interesting. I think I’d disagree on any related synergies between Kimpton and IHG. I was a Kimpton loyalist for many years until my travel patterns had me going to more cities where there weren’t Kimpton properties. Like you, Lucky, I LOVE Kimpton and everything the brand offers, as well as stands for. All Hotel chains would do well to look closely at how they operate.

    I think IHG needs Kimpton more than the other way around. Because Kimpton loyalists love the brand so much, I see them flocking away from IHG unless IHG really does something to incent them to stay.

    For many reasons, I’ve not given any business to IHG. I rarely stay at any of their properties and don’t feel great about their loyalty program. I know it’s all perception, but I detest their branding, logo, color scheme, etc – it screams bad 70’s California sunset logos and there is nothing fresh, new or exciting about the brand. Doubt any Kimpton loyalists will either.

    Just my two cents, but this doesn’t excite me in the least unless IHG decides to rebuild their imaging, brand (well, just about everything) around what Kimpton did, the likelihood of which might be zero.

  11. I remember reading the email from the IHG Americas President detailing acquisition news 12 hours prior to the news going public worldwide.

    From the pespective of a hotel enthusiast, it is indeed a silver lining. Loss of personal identity and nifty rewards programs. However, the Kimpton brand will continue to grow far faster under a enormous hotel chain. I wish the very best for the Kimpton brand and hope it continues to survive.

    From the perspective of an owner of 3 IHG hotels, the acquisition fulfills IHG’s wish to acquire a luxurious boutique hotel into its family. What in the IHG brand compares to Starwood’s W hotel or Westin, Marriott’s lifestyle collections of brands, or Hilton’s newly-created Curio brand? The answer is Kimpton. However, I do not like IHG at all. There is no support, structure, and professionalism for owners seeking to expand and build hotels from an ownership perspective. I hate the design, feel, atmosphere. The other chains are 10 steps ahead of IHG in terms of R&D and these major chain’s R&D centers. Hopefully, Kimpton will bring personalized service, high ADR, and will further help to build IHG’s growth, reputation, and image. I will be looking to invest and build a Kimpton IF other chains do not provide me a good franchise agreement and as a last resort.

    In regards to a few above comments, IHG does have an ambassador program. Keep in mind, this ambassador is exclusive for Intercontinental Hotels, only, and doesn’t apply to any other brand in the chain. IHG has attempted to institute a guest “ambassador” at Holiday Inn chain, but it is not strongly enforce and results have been weak at best.

    In my opinion, IHG acquiring Kimpton was not because of Starwoods putting a bid to buy-out IHG. It was the need to better compete with Marriott, Hilton, and Starwood with a more upscale lifestyle brand (versus low quality Indigo brand).

    The Kimpton program and IHG loyalty program should merge completely between .75 year – 1.25 year, if I remember correctly.

    Lastly, it is of my opinion that IHG will need to radically change themselves and the company in order to stay competitive with the industry. Yes, the chain may have more hotels located world-wide, but it is getting very old and staying in the past.

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