‘Scale matters’: Why appetite for M&A is still there for Choice

LAS VEGAS — A little more than a month after Wyndham Hotels & Resorts successfully fought off Choice Hotels International’s hostile takeover attempt, CEO Patrick Pacious said M&A is still very much an option for the hospitality company.

“If you look at our company’s 22 brands, probably half of them we’ve launched ourselves, but the other half are things we have acquired over time,” Pacious said during an executive roundtable session at the company’s 68th annual convention last week in Las Vegas.

“M&A has always been a part of Choice’s history, and we’re in an industry now where scale matters,” he said. “When you look at the advancements that are coming our way — AI, the sort of platform-type businesses that consumers are flocking to. That takes capital and it takes scale.”

Like the company’s acquisition of Radisson Hotels America in 2022, Pacious said that M&A can also be an entrée to entering other segments.

“There continue to be gaps in our portfolio that we will look to add,” he said. “We don’t play today yet in the upscale extended-stay segment. Given the success we’re having with the brands we have in midscale and economy, that’s a real opportunity for us moving forward.”

Extended-stay plays

After acquiring Radisson Hotels Americas, Choice restructured its leadership to focus on three segments: core brands, upscale and extended-stay.

The company is optimistic about its growth in extended-stay with its four midscale and economy brands: Everhome Suites, Woodspring Suites, MainStay Suites and Suburban Studios.

When asked about recent RevPAR declines for the segment or the worry about oversaturation in markets with all the new developments from other brands over the past year, Pacious said the company is confident that the market dynamics are on the company’s side.

“The demand for extended-stay is double what the purpose-built supply is in the U.S.,” he said. “There is a huge amount of extended-stay travelers who are staying in a transient room that doesn’t have space to put things out. It doesn’t have a kitchenette or full kitchen… So, that’s really what’s driving extended-stay, particularly in the segments we’re in.”

Pacious said the “secret sauce” is catering to the right extended-stay customer.

You can launch a brand, but it’s really hard to make a brand successful and to get it growing. We are doing a number of things differently in extended-stay than a lot of the current brands that are trying to enter.

Patrick Pacious

Share this quote

“You can launch a brand, but it’s really hard to make a brand successful and to get it growing,” he said. “We are doing a number of things differently in extended-stay than a lot of the current brands that are trying to enter.”

Pacious also said it’s also critical to find the true extended-stay customer. “The key factor for any extended-stay owner is: what is your extended-stay occupancy? Not [overall] occupancy, but extended-stay occupancy. Can you get that 12-to-24-night stay? Because, if you can, the economics and the returns for your hotel go up significantly.”

Pacious said that if you are building an extended-stay hotel and filling it with transient travelers, you can’t realize the real opportunities. “For a lot of the competitors that are coming in, 70% of their occupancy is actually transient. It’s not true extended-stay.”

And this is where the “secret sauce” comes in. “You have to market to the right folks, and that means you have to serve them when they get there,” Pacious said. “That’s a very different approach to marketing and filling your hotel than when you’re doing it in an upscale extended-stay property that might rely more on the transient traveler.”

Dom Dragisich, executive vice president of operations and chief global brand officer for Choice, said being first-to-market in extended-stay also makes the company bullish on its growth opportunities. “There’s a difference between signing franchise agreements and having open hotels,” he said. “When you look at all four of our brands, we’ve said publicly that we expect extended-stay to be at 15% CAGR over a five-year period.”

Dragisich said Choice is continuing to see that acceleration. “We believe that we have that first-mover advantage, and we have the proven formula for success that’s attracting more developers.”