Hilton pays $1.4bn for Diamond Resorts purchase

US: Timeshare point-based reservations and exchange system, Hilton Grand Vacations [HGV], has announced that it is buying Las Vegas timeshare operator Diamond Resorts International in a stock deal with an equity value of approximately $1.4 billion.

As a result, Hilton Grand Vacations shareholders will own approximately 72 per cent of the combined company, while Apollo and other Diamond shareholders will take a 28 per cent share, according to the company’s statement. The combined timeshare business will incorporate 154 resort properties, including 92 owned by Diamond and 62 owned by Hilton Grand.

As the hospitality industry teeters towards a recovery from the Covid-19 pandemic, timeshare operators such as Hilton Grand Vacations and Diamond Resorts, and online travel agencies [OTAs], such as Airbnb and Vrbo, have benefitted from upsurges in demand for leisure travel due to the rollout of Covid-19 vaccines and relaxed travel restrictions.

Global hotel chains such as Marriott and Hilton are banking on this pent-up demand to offset their unused hotel spaces and strengthen their affiliated resort and timeshare programmes in the hope of leading a more prolonged recovery later this year.

HGV is primed to buy Diamond Resorts International from affiliates of Apollo Global Management, Reverence Capital Partners and others in an all-stock deal. The acquisition will see what claims to be the “largest independent timeshare company” combine forces with Hilton Grand Vacations’ brand and culture, creating a broad leisure operator in the vacation ownership industry.

As a formerly owned subsidiary of Hilton Worldwide, HGV develops markets and operates vacation ownership in the Hawaiian islands, New York City and Las Vegas.

The combined company of Hilton Grand Vacations and Diamond Resorts will have 720,000 owners and 154 resorts, while Apollo Funds and other Diamond stockholders will get 34.5 million shares of HGV common stock, subject to customary adjustments, as per the deal.

The transaction is expected to close this summer and will generate over $125 million in run-rate cost synergies, expanding Hilton Grand Vacations’ resort portfolio in over 20 new markets.

Mark Wang, president and CEO of HGV, said: “I’m excited to announce our transformational agreement to add Diamond Resorts to the Hilton Grand Vacations family, accelerating our next phase of growth. This strategic combination will leverage the strengths of each company, positioning us to drive significant net owner growth while enhancing efficiencies of scale and generating significant shareholder value.

“Diamond’s extensive regional, drive-to network of resorts and expanded demographics uniquely complement HGV’s best-in-class lead generation, world-class hospitality, and premier destinations backed by the strength of the Hilton brand. For our valued team members, owners and guests, this combination creates new opportunities to provide exciting destinations and memorable vacation experiences while continuing to provide exceptional levels of service,” he added.

This year has already seen a number of high-profile investments in timeshares and vacation ownership resorts, with global hotel brands identifying the space as a key growth segment for when travel picks up.

In January, timeshare and vacation ownership company Wyndham Destinations acquired travel publication Travel + Leisure from Meredith Corporation, and rebranded itself as Travel + Leisure Co. last month. Wyndham operates 230 timeshare resorts around the globe and paid $100 million to Meredith Company to acquire Travel + Leisure.

In Florida, it was announced that a new $1.5 billion mega-resort, the Evermore Orlando Resort, would be built on the doorstep of Walt Disney World and welcome guests by the summer of 2023.

The 1,100-acre resort, which aims to take the vacation home business into a “new level of luxury and sophistication”, will accommodate a range of mansion-type villas, vacation rentals and flats, providing up to 10,000 bedrooms, for visitors to the world-renowned theme parks.

In the same month, Marriott Vacations Worldwide [MVW] confirmed that it had entered into a definitive agreement to acquire Welk Resorts, one of the largest timeshare companies in North America, for approximately $430 million, including an estimated 1.4 million MVW common shares. The acquisition is expected to close early in the second quarter of 2021.

Meanwhile, vacation rental marketplace KOALA launched in August with the aim to reshape the global $30 billion timeshare industry. Co-founders Mike Kennedy and James Burbidge raised $3.4 million in Series A capital.

Timeshare companies, which sell fractional stakes in vacation properties, offer units including kitchens and extra bedrooms, as well as longer booking windows than traditional lodging; all of which appeals to young families in particular.

The return of leisure travel will be heavily dependent on the rollout of effective Covid-19 vaccines, and reports suggest travel demand is already well ahead of what it was in 2019, before the pandemic was declared.

David Katz, an analyst at Jefferies, wrote in a note: “The manifestation of pent-up demand is so significant that timeshare companies will need to reduce rental activity to make availably for existing owners.”

Apollo took Diamond Resorts private in 2016 for $2.2 billion and unsuccessfully attempted to buy Hilton Grand Vacations in 2019, as reportedly did New York-based Blackstone Group.