InterContinental Hotels Group to Acquire Kimpton Hotels & Restaurants for $430 Million

I nterContinental Hotels Group PLC has agreed to acquire Kimpton Hotels & Restaurants — the largest independent boutique hotel operator in the world with 62 hotel properties in 28 cities and a sophisticated food and beverage operator with 71 destination restaurants and bars — for $430 million in cash, according to this official press release.

The Kimpton brand will apparently become another brand of the portfolio of InterContinental Hotels Group, rather than be integrated into its existing brands, as there are significant opportunities “to accelerate the growth of the Kimpton brand” within the United States and to “launch it globally” — especially in “Europe and Asia where there is strong demand for boutique brands.”

It is unclear at this time as to whether or not the Karma Rewards frequent guest loyalty program — a “new approach to loyalty that shifts the focus to rewarding guests for true engagement with Kimpton” rather than simply measured by stays at hotel properties, which was introduced with an announcement by Kimpton Hotels and Restaurants Group on Wednesday, July 16, 2014 — will remain; but I believe that the IHG Rewards Club frequent guest loyalty program may adopt some of the features and benefits of Karma Rewards. This could potentially be a win-win scenario for members of Karma Rewards, as Kimpton branded hotel properties will have a stronger financial backing by a world leader in the lodging industry — but in the meantime, nothing changes.

FlyerTalk members are discussing this acquisition here and here; and as recently as Friday, December 12, 2014, Susan McDowell — who is the member communications manager of loyalty marketing at Kimpton Hotels & Restaurants — posted the following on FlyerTalk:

Don’t forget: Kimpton Tier Reset Coming Soon!
Missing stays from your profile? Don’t sweat it. Just log into your account to get those credited before your Tier resets on Jan 1, 2015. Any 2014 visits added after Dec 31 will still count toward earning free nights, but will not progress your Tier or Journey Reward status. Hurry – we want you to enjoy all the perks and benefits of your Tier come the New Year!

With this acquisition, InterContinental Hotels Group will become “the clear market leader in the boutique segment, the fastest growing segment in the industry” which is “highly complementary with the Hotel Indigo and EVEN Hotels brands” and “creates a leading boutique and lifestyle hotel business, with over 200 open and pipeline hotels across 19 countries.”

The following statement is from Richard Solomons, who is the chief executive officer of InterContinental Hotels Group:

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.

The following statement is from Mike Depatie, who is the chief executive officer of Kimpton Hotels & Restaurants:

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.

Significant Opportunity to Accelerate Growth

The boutique hotel segment has been the fastest growing in the hospitality industry over the last four years, with demand, supply, and RevPAR growth for boutique hotels in the US each significantly outperforming the overall industry.

InterContinental Hotels Group will capitalise on its scale, powerful global owner networks, digital platforms, and specialist capabilities of building preferred brands to enhance the growth of Kimpton globally. InterContinental Hotels Group will also benefit from the strong track record of Kimpton in operational excellence, food & beverage and design, to add value across its current brand portfolio.

The Kimpton Real Estate Investment Funds — which are run by four existing Kimpton executives — expect to make future investments in Kimpton branded hotels.  The Funds own approximately 30 percent of the existing and pipeline properties of Kimpton and intend to raise additional funds to acquire, develop and redevelop boutique hotels.  As part of this investment platform, the Funds expect to have a meaningful and on-going relationship with the Kimpton brand.

Financial Performance

Kimpton has a strong track record of operational and financial performance, achieving 4.0 percent per annum growth in system size and 7.7% average growth in comparable same store RevPAR in the last five years. The EBITDA — earnings before interest, taxes, depreciation, and amortization — of Kimpton is expected to be approximately $20 million for the year ended 31 December 2014, and InterContinental Hotels Group expects to be able to deliver future growth in Kimpton EBITDA to approximately $39 million by 2017 from the opening of hotels in the pipeline and the achievement of certain back office and technology savings. 

Transaction Overview

This transaction will be financed through existing cash resources and new debt facilities, and is expected to close during the first quarter of 2015 upon satisfaction of certain customary conditions, including Hart-Scott-Rodino anti-trust clearance and  consent of shareholders of Kimpton.

For tax purposes, the transaction constitutes an asset sale for both the vendor and purchaser, and InterContinental Hotels Group is entitled to amortise the assets acquired.  It is anticipated that the relief associated with this amortisation will reduce future taxes by approximately $160 million.

BofA Merrill Lynch acted as financial adviser to InterContinental Hotels Group.

What are your thoughts about this acquisition?

Photograph of pool at Surfcomber in Miami courtesy of Kimpton Hotels and Restaurants Group.

One thought on “InterContinental Hotels Group to Acquire Kimpton Hotels & Restaurants for $430 Million”

  1. Raffles says:

    The irony of an asset-lite business buying another asset-lite business, but treating it as an asser purchase in order to avoid tax equivalent to 30 per cent of the purchase price, is priceless.

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