Hyatt: Acquisition of Playa Expands Firm's All-Inclusive Portfolio; Shares Rich

After entering exclusive talks with Playa last December, narrow-moat Hyatt announced it will acquire the remaining 91.6% it did not own of the all-inclusive resort operator for $2.6 billion, inclusive of $900 million in debt. Initially, we see the strategic merit in expanding Hyatt's all-inclusive presence (about 17% of its total rooms) and find the 11 times trailing 12-month EBITDA purchase price as reasonable. But we don't expect a meaningful change to our long-term forecast for Hyatt. This is due to Hyatt's plans to sell Playa's owned assets, which represent most of the company's revenue, EBITDA, and room base, for at least $2 billion by 2027. That would then leave Hyatt with Playa's managed business, which generated fees of $7 million in 2023, some of which came from resorts using Marriott, Hilton, and Wyndham brands. In the end, we see the acquisition allowing Hyatt to bring the management a few thousand rooms currently under Playa's Hyatt Ziva and Zilara brands in house. Additionally, Hyatt should see incremental management revenue from future expansion of its Ziva and Zilara brands. We have maintained our $147 fair value estimate, which we plan to revisit after Hyatt reports earnings Feb. 13, and our Standard Capital Allocation Rating. We see shares trading at 15 times forward EV/EBITDA as slightly overvalued.