Kimpton executives were ‘reluctant sellers’
04 FEBRUARY 2015 9:09 AM
“It’s something we didn’t really want to do,” former Kimpton CEO Mike Depatie said of the boutique brand’s sale to global chain IHG.
LOS ANGELES—Executives at Kimpton Hotels & Restaurants were “reluctant sellers” who hesitated before accepting a takeover bid from global chain InterContinental Hotels Group. But now that the deal is done, IHG CEO Richard Solomons said he has clear-cut plans for integrating the boutique brand into the IHG family while retaining its uniqueness.
“We kept it very quiet, quite frankly, because we didn’t know it was going to happen,” said Mike Depatie, Kimpton’s former CEO who will now oversee the boutique brand’s development fund, during a “View from the boardroom” panel at the Americas Lodging Investment Summit.
“We didn’t know it was going to sell,” he said of the vetting process that began in the fall of 2014. It was then that Kimpton’s management team hired Goldman Sachs to gauge whether there was indeed in interest in the boutique brand from a global chain—rumors of which had been circulating for years.
“It appeared to be a very good time for a transaction like this,” Depatie said. “And quite frankly, we were reluctant sellers. It’s something we didn’t really want to do.”
But IHG’s bid—which at $430 million represented 21 times earnings before interest, taxes, depreciation and amortization—proved too good to pass up, Depatie said.
If it ain’t broke
Sitting on the same ALIS panel was Jon Bortz, chairman, president and CEO of Pebblebrook Hotel Trust, which is Kimpton’s largest-by-property owner with 10 hotels in its portfolio. When asked what advice he gave management at IHG after hearing of the deal, he didn’t mince words:
“There was nothing broken, so you don’t need to change anything,” he said
The comment mirrors a view shared by many outside observers and Kimpton brand loyalists, who expressed concern that the Kimpton portfolio would lose its unique character and hyper-local feel once it was folded into a chain that specializes in large global brands such as Holiday Inn.
“I think boutique by its very nature is unique and special. I don't know how you can create something unique and special in a mass-market way,” said Niki Leondakis, CEO of boutique parent company Commune Hotels + Resorts—which owns the Joie de Vivre, Thompson and Tommie brands—when asked to comment on the current state of branded boutique growth in the hotel industry.
(Leondakis previously served as president and COO of Kimpton.)
“How can a company that is so centralized by its very nature ... all of a sudden become decentralized and innovative enough to stay fresh?” she said, referring to recent movements by large franchise hotel brands into the boutique space.
It’s a question Richard Solomons, CEO of IHG, has on his radar as well.
“When we announced the deal … there were some Kimpton customers who were concerned, and they (said so) on social media,” he said in a separate interview. “In a way, I like that because it shows the passion for the brand.
“I’ve assured the Kimpton team, our team, and I’ve assured the Kimpton customers … we’re not here to change (the brand or) to take anything away from what it stands for.”
Solomons likened his approach to that of Volkswagen, a mid-market auto manufacturer that also owns high-end, luxury auto brand Lamborghini, among others. While the Volkswagen team shares learnings across brands—Lamborghinis have never been more reliable as a result, he said—they respect the integrity and unique nature of each brand and let them thrive as such.
“That’s the way to think about it: being true to the original brands,” he said. “One of the differences with IHG compared to some of our competition is, our brands are not Holiday Inn by IHG or Crowne Plaza by IHG or even Indigo by IHG. IHG is the umbrella, sort of trust mark. Our brands are very clearly defined.
“What makes Kimpton great,” he added, “we’re not going to play with.”
Trusting the process
IHG is somewhat unique among its competitors in that the global chain already counts a boutique brand within its portfolio.
“We’ve been quite a big player in the branded boutique segment with Hotel Indigo, albeit at a lower price point,” Solomons said. In the United States, revenue per available room for Hotel Indigo runs approximately $100 lower than that of Kimpton, he added.
“We have a very powerful mass-market business in Holiday Inn, Holiday Inn Express … and we have a powerful luxury business with InterContinental. But there’s something different with the boutique business. Customers want an experience that’s somewhat consistent, but it’s not about cookie cutter in the same way it is in the mainstream. So the capabilities are going to be similar—how you do food and beverage, how you operate, how you get the staff and colleagues in a hotel behind the brand—but there is very little overlap (between Indigo and Kimpton),” he said.
Bortz was not entirely sold.
“We’ll see what happens,” he said during the panel. “I think they understand how Kimpton is different and how the customer is different.”
Quelling his fears somewhat is his trust in the Kimpton executive team.
“We used to say, ‘If Mike (Depatie) is selling, let’s think about that for a second because they’re pretty smart about it,’” he said.
“But we do get a little worried sometimes when the large brands grab onto some trend in the industry,” Bortz added. “A lot of times larger companies take longer to move and change. Sometimes we get concerned that we’re at the end of the trend. We don’t think that’s the case here. There’s a large secular trend about people wanting more experiences.
“We’ll see how it plays out,” he said. “It’s interesting.”