Report: Comfort Inn owner Choice Hotels looks to buy Wyndham

The battle of the budget hotel brands is getting spicier by the minute.

Choice Hotels, owner of brands like Comfort Inn and Clarion, is in pursuit of Wyndham Hotels & Resorts, the Wall Street Journal first reported Tuesday. The deal would combine two of the largest operators of budget hotel brands in the U.S. and comes amid rising competition from the likes of Hilton and Marriott entering this sector. It makes sense in light of so much attention in recent months pushing toward the budget sector, where Choice and Wyndham compete significantly.

Hilton officially launched an extended-stay brand this week, months after debuting Spark, a premium economy brand. This comes amid Hyatt also entering the extended-stay hotel space and Marriott pushing into more affordable offerings with its recent acquisition of the Mexico-based City Express hotel chain and the planned debut of its own extended-stay hotel brand.

Much industry sentiment around all these moves is that it puts more pressure on Choice and Wyndham, as these bigger brands generally appeal to more travelers looking to build up loyalty points and then cash in on stays at some of the more luxury offerings in the loyalty program ecosystem.

But let's not get ahead of ourselves in terms of mergers and acquisitions.

The WSJ report notes Choice and Wyndham aren't currently engaged in serious merger and acquisition talks, and it isn't clear if Wyndham even wants to be acquired. There is potential that Choice leaders would take an acquisition offer directly to Wyndham shareholders.

A Wyndham spokesperson did not respond to TPG's request for comment in time for publication. A Choice spokesperson told TPG the company does not comment on market rumors or speculation.

Budget brand blowout

Nearly half of Wyndham's hotels are in the economy sector, with brands like Days Inn and Super 8. Choice's largest brands by hotel count are Comfort and Quality, which operate in the "upper midscale" category alongside brands like IHG's Holiday Inn Express and Hilton's Hampton.

Wyndham CEO Geoffrey Ballotti earlier this year viewed his company's structure as a competitive advantage amid the increased competition arriving into the affordable segment of the hotel food chain.

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"We have the most recognized economy brands in the space, and we've been in this space for over 30 years," Ballotti said on an investor call. "We know these customers. We know these owners, and we know what's important to both."

Choice's acquisition and brand expansion strategy in recent years appeared more in pursuit of upscale offerings with the growth of the Ascend Hotel Collection and the $675 million acquisition last year of Radisson's Americas operation.

Radisson Hotels Americas had been forcibly spun out from Radisson Hotel Group amid U.S. political pressure due to Chinese state-backed firm Jin Jiang International's ownership of the combined Radisson organization. The U.S. previously called for a significant overhaul of the company in a move to protect user data from being accessed by the Chinese government.

However, Choice's pursuit of Wyndham also helps it build a greater foothold in higher-end hotels, too. Wyndham, in recent years, added the Alltra all-inclusive resort brand as well as the Registry Collection, a collection of luxury hotels.

The collective brand buildup would have Choice increasingly going head to head against its larger competitors, but the company's CEO, Patrick Pacious, didn't appear too concerned earlier this year about an increased threat in the affordable hotel sector.

"We look at the quality of what we're delivering to our hotels, and we look at that marketplace, be it midscale or the economy segment," he said on an investor call in February. "We are winning the better quality hotels that are out there, be that Econo Lodge, be it Quality Inn or any of our midscale brands. So, from the standpoint of the competitive nature, we're winning the hotels that we want to win into our system."

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