Wyndham Worldwide Corporation recently announced an agreement to sell its European vacation rental business to Platinum Equity, LLC for approximately $1.3 billion, or 9.2x EBITDA. Under the deal terms, Platinum Equity will acquire the target through its Platinum Equity Capital Partners IV, L.P. fund in the second quarter of 2018. The deal is subject to approval of the European Commission and includes a $55 million termination fee from Wyndham Worldwide.
Wyndham’s European vacation rental business controls a number of holiday rental brands, notably James Villa Holidays, Landal Greenparks, and Novasol. The acquired business has more than 110,000 units in more than 25 countries. As of 2017 year end, it generated approximately $745 million in revenue and $141 million in adjusted EBITDA. The sale terms include a 20-year agreement, under which the newly acquired business will pay a 1% royalty fee of net revenue to Wyndham Worldwide for brand rights. Wyndham has recently announced an agreement to acquire La Quinta Holdings’ franchising and management businesses. This transaction was pursued in accordance with Wyndham’s strategy of pursuing growth opportunities, as well as expanding its presence in the upper-midscale hospitality segment. Wyndham agreed to purchase 100% stake of La Quinta for a consideration of $1.7 billion.
Although the La Quinta deal reflects general trends in the hospitality market, the sale of a European business appears to be on the contrary. After recent high profile deals such as Marriott International and Starwood Hotels or AccorHotels and Fairmont Hotels, the hospitality industry has been marked by consolidation. Growth by acquiring brands has been led by the key players’ desire to expand scale and market share. Despite such trends, Wyndham Worldwide had expressed interest in selling the European business since August 2017. The Company had separated its vacation rental business and hotel business, and launched an auction process for the sale. A significant level of competitive tension was generated, including the participation of major financial investors such as Bain Capital, KKR, Blackstone, and CVC. After completion of the deal, Wyndham expects tax obligations arising from the sale to be kept under 15% of net proceeds. Furthermore, it plans on using the sale proceeds to finance the recent acquisition of La Quinta Holdings and to fund other business operations.
Platinum Equity is a private equity firm founded in 1995, currently with $13 billion assets under management and a portfolio that includes more than 30 companies globally. Lately, Platinum Equity has been actively investing in the European market, employing more than 16,000 people through its portfolio companies. Prior to the Wyndham deal, the Company acquired UK aerospace and defense supply chain provider Pattonair for an undisclosed consideration in the fourth quarter of 2017. On a broader scope, Platinum Equity invests in various industries including telecommunications, manufacturing, metals services, and logistics. The Company has closed more than 200 acquisition deals throughout the span of two decades.
Platinum plans to drive growth in their new venture through future add-on acquisitions, as well as through organic growth and the streamlining of business operations. This is nothing new; the private equity industry as a whole has shown interest in European hospitality recently. With the European economy rebounding from its crisis lows (the Eurozone economy grew 2.5% in 2017, the highest rate of growth since 2007), firms like Platinum have targeted industries that swell when people get wealthier (primarily hospitality). In December of 2016, Onex Corp. deployed the same strategy when acquiring Parkdean Resorts, a large resort operator in the U.K., for nearly $2 billion.
Based on industry research published by Technavio, the European vacation rentals market is expected to achieve a CAGR of 8% or above by 2022. As tourism is a major contributor to the gross national product and employment of the European Union, the expected increase of tourists is a key driver of the vacation rental market’s growth. Another significant driver of the market has been the emergence of instant booking functions for vacation rentals. Even before the advent of Airbnb, the size of the vacation rental industry has exploded. This growth is driven by an estimated 44 million users by 2022, each contributing nearly $350 in revenue. By comparison, the United States’ vacation rental industry generates nearly $18 billion in revenue each year, largely due to Airbnb making renting easier for the average consumer. Darren Huston, CEO of hotel group Priceline, noted that the vacation rental market is growing faster than Priceline’s core business and that the transaction value of the short-term rental market grew more than 200% between 2015 and 2016. This growth is likely a result in more investment in luxury holiday rental which has made it a better and more affordable experience for increasingly wealthy consumers.
Platinum clearly sees vacation rentals as the future of hospitality, and Wyndham’s business model has shown that it can be done successfully. In Wyndham’s own 2017 investor presentation, they noted that nearly 1 in 3 U.S. travelers in 2015 used private accommodations. Wyndham’s rental business is more than twice the size of Marriott’s, their next-closest hospitality competitor. In the future, it would be safe to assume that Platinum’s capital investments will only strengthen this lead and transform the hospitality industry as a whole.