Wyndham stays on course with vacation rental sale

Landal Domein De Schatberg, a holiday park in Limburg, The Netherlands
Landal Domein De Schatberg, a holiday park in Limburg, The Netherlands

Wyndham Worldwide Corp. announced on Thursday that it has entered into a definitive agreement for the sale of its European vacation rental business to global private equity firm Platinum Equity for approximately US$1.3 billion. The transaction is expected to closed in Q2 2018.

In conjunction with the sale, the European vacation rental business has entered into a 20-year agreement under which it will pay a royalty fee of 1% of net revenue to Wyndham’s hotel business for the right to use the by Wyndham Vacation Rentals endorser brand.  he European vacation rentals operations will also participate as a redemption partner in the award-winning Wyndham Rewards loyalty program.

Wyndham’s European vacation rental business has more than 110,000 units in over 600 destinations in more than 25 countries. The business operates more than two dozen local brands, including, James Villa Holidays, Landal GreenParks, Novasol and Hoseasons. It generates approximately US$750 million in annual revenue and approximately US$130 million of EBITDA, including allocated costs.

SunTrust Robinson Humphrey analyst C. Patrick Scholes noted that assuming US$140 million of EBITDA in 2018 (trailing 12 months was US$130 million) for this business, it estimate a 9.3x multiple on 2018 EBITDA. This multiple is higher, Scholes said, than the 7-7.5x SunTrust previously believed it was to be sold for. “We recall these vacation rental businesses were purchased for around 4-5x EBITDA (pre-synergies) over the course of the past 15 years and since then Wyndham has improved their operations,” Scholes said.

Scholes added that the sale price exceeded expectations with US$300 million in upside versus numbers that had been floated in the press. “Net-net, we see about US$2 per share of additional value here versus our prior expectation,” he said.

The second surprise, Scholes said, was the news that Wyndham will receive ongoing royalty fees, which were not included in prior guidance: He said a 1% royalty fee creating US$750 million of annual revenues equals US$7.5 million per year in upside to EBITDA. “We see about an extra US$1 per share in value from this at our target multiple,” Scholes said.

Wyndham Worldwide originally announced its intent to explore strategic alternatives for its European rental brands in August 2017, in conjunction with the company’s announcement of the planned separation of its hotel business from its vacation ownership and timeshare exchange businesses.

Platinum Equity has been very active in the European M&A market and the firm’s current portfolio companies employ more than 16,000 people in the region. The proposed acquisition of Wyndham’s European vacation rental business represents Platinum Equity’s second European investment since the fourth quarter 2017 when the firm acquired Pattonair.

Wyndham Worldwide estimates that the tax obligations associated with the sale of the European Rental brands will be less than 15% of the proceeds. The company expects to use the net proceeds from the sale for general corporate purposes, which may include debt repayment and/or funding of its recently announced acquisition of La Quinta Holdings’ hotel franchising and management businesses. Wyndham Worldwide’s planned spin-off of Wyndham Hotel Group remains on track for an expected distribution in the second quarter of 2018.