The advantage of scale: A look at the new Aimbridge
PLANO, Texas—The integration of the world’s two largest hotel management companies into one has been a months-long process, requiring detailed planning from the moment the deal closed.
Aimbridge Hospitality and Interstate Hotels & Resorts surprised the hotel industry in late August 2019 with the announcement of their intention to merge into the largest third-party management company. The two companies closed the deal in October 2019 and have spent the following months combining operations. The company temporarily closed hotels and furloughed staff due to the coronavirus pandemic, but has been able to continue with the integration process.
Hotel News Now visited Aimbridge’s merged corporate office in mid-March to speak with company executives and interviewed with Aimbridge CEO Dave Johnson by phone in early May to discuss the integration.
An integration overview
The company’s senior leadership team, working with outside assistants, defined goals and a timeline for the integration, Johnson said.
Familiarity between the two companies helped that process, he said, noting that he and Global President Mike Deitemeyer, former president and CEO of Interstate, have been friends for more than 20 years.
“We were able to quickly make decisions on what the roadmap was to combine the two companies together,” he said.
A key concern in the process was to avoid distracting employees in sales and marketing, revenue management and at the properties, Johnson said. It was important to not interrupt the work of oversight teams at properties on behalf of the owners, he said.
Aimbridge focused on clear communications in engaging with the property teams, Deitemeyer said.
“As you’re evolving an organization, as you’re thinking about who you are and how you want to perform in the broader marketplace, it’s really around communication, dialogue, getting to know the team that works for you,” he said.
With a company the size and scale of Aimbridge, messaging and communication take time, he said. Human resources and marketing, working together, can create an intimate relationship with the associates, even at the company’s scale, he said.
Regional meetings and roadshow-type events help to familiarize associates with the executive team and what they stand for, he said.
“We’re bringing a lot of that back to the corporate office so that people have an understanding,” he said. “They see the space; they meet the people; they get to interact with them in a way they don’t necessarily get to every day. That grounds them in who Aimbridge is.”
From a people and processes standpoint, the integration is basically done, Johnson said. The last piece of the puzzle is the IT systems, which are the architecture of the business, he said. By late summer, the two combined companies will be on a common system, he said.
In March, Aimbridge announced its response plan to the coronavirus pandemic, and Interstate’s former general counsel, Erica Hageman, was appointed to the role of chief government affairs officer to work with owners on new government regulations. The plan outlined:
- cost containment initiatives, including wage reductions at the corporate level;
- partnerships with brands and vendors to help hotel owners manage costs;
- strategies to drive revenue through specialized groups still staying in hotels; and
- the formation of nonprofit entity Aimbridge Aid to provide financial assistance to employees.
In addition to wage cuts at the corporate level, the company furloughed or laid off about 60% of its workforce and about 12% to 14% of its corporate office, Johnson said. As business has started to pick up, the company has brought employees back, he said.
At the time of the interview, Johnson said Aimbridge Aid had raised almost $1 million. The nonprofit received nearly 100 applications for assistance, requesting $500 to $3,000 for groceries, car payments, rent and school supplies to homeschool children, he said.
“Ninety-percent of the grants will go to people that are working in our properties, that are hourly employees that really live check-to-check, so it’s going to the hands of people that are really in need,” he said.
Aimbridge’s scale provides it with data from more than 1,400 hotels across the world in 20 different countries daily, Johnson said.
“We have a better pulse of where things are, where things are improving and where things are getting worse,” he said.
Business travel is still low, but leisure travel has been showing positive signs, particularly in markets with beaches and golf course resorts, he said. Bookings and occupancy in drive-to markets have improved. Aimbridge’s hotels on the lower end of the chain scale have benefited from trucking and contract business while large urban hotels typically reliant on group business have had single-digit occupancies or closed, he said.
Company culture at Aimbridge and Interstate was more alike than different, leading to natural alignment with similar focuses on people and investors, said Brenda Helps, SVP of human resources-talent.
“Both organizations have had a strong belief in giving back to their communities and also in investing in tools that help us to continually improve in all areas,” she said.
The HR team has been working to create combined values that will serve as a foundation for the culture of the new organization, she said. Employees are getting to know each other with the help of several summits to establish priorities, she said.
The value proposition for employees and associates is career growth and opportunities, Helps said. Ability to grow careers was already a key component for both Aimbridge and Interstate, but their combination takes it to a new level, she said. General managers and associates who felt stuck in certain markets now have more opportunities to relocate, she said. The company was averaging about 10 management transfers a month between the two legacy portfolios at the time of the interview.
When two groups come together, there’s anxiety on both sides, Deitemeyer said. The deal presented a dynamic shift for both companies: Interstate had 60 years of history in the industry, and Aimbridge had grown from eight to 800 hotels over 15 years.
Discussions with associates on each side helped to identify culture points that were weaved together by Chief Marketing Officer Andrew Jordan and EVP and Chief Human Resources Officer Ann Christenson.
“When you step back, regardless of which side you’re on, you see your DNA imprint on the dialogue and how the organization is communicating with you,” he said. “That was brilliant on the front end, and it really allowed both sides to feel comfortable that their world wasn’t changing overnight.”
The company also looked to identify associates with unique expertise, and deployed resources to provide them more support, Deitemeyer said.
“People are really coming together under that and going, ‘Wow, we are better as one,’ so it’s been pretty exciting,” he said.
At the time of the interview, Aimbridge had added about 220 new management opportunities to its pipeline since 24 February, Johnson said.
The company has had interest from owners concerned with how their operators are responding to the pandemic, the liquidity of their operating partners and the number of people the operators have had to lay off, he said.
If Aimbridge managed only 50 or 60 hotels, he said he would question whether the company would survive the pandemic. “I don’t think it’s going to snap back,” he said.
Owners are getting forbearance on their debt for 90 days, and many smaller companies are getting federal Paycheck Protection Program funding, which helps keep people employed, he said. After that 90 days of breathing room, it’s anyone’s guess where occupancy and rate will be, he said.
“It’s a big hole to dig out of,” he said.
Distressed assets present opportunities for a lot of capital already raised or being raised now, Johnson said. There won’t be much going on in the second quarter, but defaults will start to rise in the third and fourth quarters, he said. Aimbridge is having conversations with many who have raised capital and are looking for deals, he said.
“I see it as a tremendous opportunity for us to partner with what I would call experienced, smart capital to buy assets that are in distress and are (looking to) Aimbridge to partner with those organizations to take advantage of what is a difficult situation,” he said. “I feel great about where we’re at, positioned to partner with some of those organizations because of all the ongoing dialogue we’re having today.”
The top line was a differentiator prior to the pandemic, but that playing field is more level now, Chief Development Officer Greg O’Stean said.
“We have to take advantage of the fact that because of our scale, we can buy food and beverage cheaper; we can get insurance cheaper; we do have better benefits at a lower cost,” he said. “That is suddenly very meaningful when the top line is the same for everybody.”
Prior to the pandemic, new management deals were shifting from new construction to existing properties, which O’Stean attributed to slow revenue-per-available-room growth and rising operating costs. Those deals weren’t necessarily part of a hotel transaction, just owners who were in a down market and were considering their options, he said.
Aimbridge and Interstate complement each other, being strong in areas where the other had opportunities to grow, said Rob Smith, EVP of full-service hotels and resorts. That helped move the integration along quickly, he said.
They were able to align along similar verticals: Interstate, which didn’t have much of a resort division, was able to tie into Aimbridge’s resort vertical, for example.
The company then moved into the phase in which it’s creating value for owners, he said.
“That was the whole idea behind the merger: to have a third-party operator that could operate on the same value equation as some of the big brands,” he said.
One of the benefits of the merger is that the company doesn’t hang its name on the side of the hotel, Smith said. That means it can look at any new opportunity, evaluate the property and operate in all verticals, he said. The company runs hotels from the economy segment to luxury, he said.
“We’re looking for hotels that make sense, that we either can rebrand or step into a poor operating strategy that we can turn around,” he said.
Aimbridge has access to all of the brands and is looking at both new-build hotels as well as existing assets where the company can offer a better operating model, he said. Working with owners who have multiple properties gives the company the chance to expand within those owners’ portfolios, he said.
Aimbridge’s scale gives it an edge in buying power, access to talent and leverage with brands, he said. It also gives it the opportunity to gain expertise operating the different brands, which will attract owners who want to open a hotel under a certain flag, he said.
“As we get larger, we also grow within the verticals,” he said.
Boomerang was originally an Aimbridge program in which sales and marketing would refer a potential client to a nearby sister hotel if the original booking didn’t provide all the client needed. Interstate’s domestic sales and marketing team joined the program early in the transition to better maximize the company’s scale to bring in more leads and revenue, said SVP of Sales and Marketing Brad Frazier.
In merging the teams, the company also held market events in cities around the U.S., said Jamie Grittman, SVP of sales, strategy and innovation. The company gathered property teams in those markets to network and celebrate their top performers for the last year, she said. Along with training, they talked about how the integration was working and what the future looked like, she said.
“We saw leads spike after that,” she said.
The sales and marketing teams were previously competitors, but became friends through these events and saw how they could work together, Grittman said.
After those market events, Aimbridge held a training session for the business travel salespeople in Orlando, Frazier said. For many, it was their second time together, so it was a more comfortable process, he said.
Both companies had national sales teams, Grittman said. As she worked with her Interstate counterpart on the integration process, they found the Interstate team was mature as it had been around longer, she said. As a result, the legacy Interstate team took on some legacy Aimbridge team members to help them become stronger, she said.
“That’s a testament to taking resources from both sides and bringing them together and making them one,” she said.