Q&A: IHG’s Acquisition of Kimpton Hotels & Restaurants
Earlier this week, news broke that UK-based InterContinental Hotels Group, the world’s largest hotel operator in terms of number of rooms, purchased Kimpton Hotels & Restaurants to create the world’s largest boutique hotel group.
Kimpton, headquartered in San Francisco and established in 1981, is the world’s largest independent boutique hotel operator, as well as a food and beverage operator. The company manages 62 hotels, with an additional 16 hotels in its pipeline. It also operates 71 hotel-based destination restaurants and bars.
According to the press release, the acquisition makes IHG “the clear leader in the boutique segment, the fastest growing segment in the industry.”
In addition, it added that the move will be complementary to IHG’s Hotel Indigo and EVEN Hotels brands with more than 200 open or in-the-pipeline hotels in 19 countries.
Richard Solomons, chief executive officer of IHG, said he was attracted to Kimpton’s portfolio of hotels and destination restaurants as a way to invest in “high-quality growth” and to use the combined entity’s scale, relationships and digital platforms to accelerate Kimpton’s growth in the U.S. and abroad.
To learn more about the move, and what it means for both brands, we asked an IHG spokesperson a handful of questions:
Why was this acquisition a good move for IHG?
This acquisition is right in line with our strategy to run a brand-heavy, asset-light business model and focus our growth in key markets like the United States. The boutique segment is the fastest-growing in the hotel industry and this gives IHG yet another foothold.
What does IHG like about the Kimpton portfolio?
Kimpton is a strong, award-winning hotel brand and a leader among independent, boutique hotel operators. There’s tremendous consumer passion behind the brand, which is further demonstrated through highly-rated guest satisfaction scores. From an operations standpoint, Kimpton brings to the table a sophisticated food and beverage program with destination restaurants, world-class design capabilities and innovative hotel concepts. And these elements all come together in a well-established company with a strong track record for financial performance.
What will this move allow the company to do?
There are nine distinct brands within our current portfolio, each of which has been designed to fit needs-based market segments. The Kimpton Hotels and Restaurants brand is highly complementary to our Hotel Indigo and EVEN Hotels lifestyle brands. This acquisition introduces another strong brand into the IHG family, one that meets a broad and diverse range of needs and stay occasions for our guests, while filling in a “white space” at the upper upscale price point. Together, this will create the world’s largest boutique hotel business with more than 200 properties open and in the pipeline.
How will you accelerate the growth of Kimpton, and where will that growth be concentrated?
Globally, IHG has more than 4,700 hotels in nearly 100 countries. The scale of our business combined with powerful distribution systems and strong owner relationships will allow us to accelerate the growth of the Kimpton brand. Our Hotel Indigo brand was launched in the U.S. in 2004 and ultimately has been expanded to key destinations such as Paris, Rome, St. Petersburg (Russia), Tel Aviv, London, Shanghai, Hong Kong, and Bangkok. We also see great potential for the Kimpton brand to expand beyond North America into Europe and Asia, where there’s great demand for the boutique segment.
Will there be any converting of hotels to InterContinental, Hotel Indigo, EVEN or other banners? And, what’s in store for specifically the InterContinental brand?
IHG has agreed to acquire Kimpton Hotels and Restaurants, as announced on December 15th. The deal is expected to close in the first quarter of 2015 following the usual regulatory approvals and other transaction-related business. After the transaction closes, Kimpton will be run by IHG as a standalone business. Given that timing, it’s too early to comment on specific plans for the future of the brand.
Is this specifically a bullish bet on the U.S. economy? What about the current economic climate is good for the hotel business?
In the third quarter of this year, IHG announced that the U.S. business had its strongest RevPAR (revenue per available room) growth in eight years. This agreed upon acquisition comes on the heels of that performance, as well as higher levels of confidence, strong demand dynamics for the hotel industry and an improving economy in the U.S. market. The Kimpton portfolio includes great hotels in key urban and resort markets in the U.S., which will only serve to further strengthen IHG’s foothold in the U.S. market and the Americas region.
What parts of the world appear to the best opportunities within the next 5 years? Are there any particular headwinds that the company is eyeing with concern?
While several global markets are experiencing some uncertainty and risk, overall we are encouraged by the current trading environment and booking trends we are seeing. There are nearly 1,200 hotels in our forward development pipeline—the bulk of which are in the U.S. and China markets. The U.S. will continue to be an important market for the hotel industry for years to come, while China is rapidly growing. Through our iconic Holiday Inn brand, we have been in the U.S. for more than 60 years and in China for 30 years (we were the first international hotel company to enter the market). We see tremendous potential to continue to grow in China, as well as to capitalize on the flow of outbound Chinese travelers which is projected to exceed 100 million travelers by 2020. The Chinese travelers will seek familiar brands while abroad; and the experience and brand recognition that they will have had in the domestic market with the IHG family of brands should make us well-positioned to be their preferred choice for international trips.