Ever since Hilton Worldwide disclosed its potential IPO deal on Monday, there have been talks going around the markets that this IPO could potentially be the largest lodging IPO in history, second biggest IPO this year and also has the potential to outshine the twitter IPO. This IPO, if completed, is yet another example of a private equity firm taking one its investments public to generate returns.
Hilton’s stock can be considered very attractive to the investors because of the following points:
1. Overseas growth potential:
Hilton is known to have 78% of its room in the US and great opportunities to expand globally especially in the emerging markets. Through industry survey, it was confirmed that industry wide revenue per available room has been increasing since 2010. And also increasing trends in the hotel industry were identified in the emerging markets such as Asia, South America, etc.
2. Hotel-management expertise:
Hilton’s history dates back to 1919 when Conrad Hilton bought his first hotel in Cisco, Texas. Hilton has 10 brands such as Waldorf Astoria, DoubleTree, Homewood Suites and Hampton Inn to its credits. With such big brands under its belt and extensive experience in the hotel industry, it can be concluded that hotel-management expertise is a great advantage for Hilton.
3. Could turn out to be the second biggest IPO of 2013:
At the midpoint of the IPO range, the company will have a stock-market value of about $19.2 billion which makes it one of the largest players in the hotel industry. Hilton’s IPO is expected to raise $2.7 billion if extra shares are sold to meet the demand, making it the second largest IPO this year only after the Plains GP Holdings LP, an affiliate of an oil and gas pipeline company.
4. Provides a safer way to invest in China:
Hilton’s shift in the business model of franchising as part of its restructuring model has helped in mapping out an international growth strategy that shields the company from many of the risks associated with investing in foreign markets. In this instance, since Hilton’s rooms in foreign markets are all franchisees, Hilton won’t be taking on direct credit or real estate exposure and in effect Hilton is able to insulate itself from the country’s credit risk and real estate market downturn.
5. The quick turnaround of Hilton:
Since its buyout in 2007, Hilton has emerged from its crisis into the fastest growing hotel brand in the world. Its IPO should not come as a surprise for those who have been following the company’s progress. Under Blackstone’s management, Hilton was able to rapidly expand its room count by 36% through the franchise model. Hilton’s franchise business is now contributing to around 50% of the entire revenue and is also considered as the fastest source of earnings for the hotel growth. Currently, Hilton is doing favorably well when compared to its competitors Marriott and Hyatt.
Hilton was previously acquired by Blackstone Group at the height of the private-equity boom as part of a $25 billion leveraged buyout, including both debt and equity. This buyout is still considered the largest ever buy-out of a hotel company in the industry. Hilton expects to use the proceedings to reduce its debt. Hilton plans to be listed on the New York Stock Exchange under the ticker symbol HLT.
Wonder how much money BX is losing on this...
BX put in ~$7bn of equity, now worth $15bn....
Ya this deal really highlights the power of financial engineering. Company loses 20% in equity value, yet BX doubles its money. Pretty wild.
The company's value is up $5bn, and it looks like they've paid down another $5bn of debt from cash flows over the past six years. All of that value accrues to equity. Nothing wild going on here. Probably mid-teens IRR for Blackstone.
@chipmunkmonkey, I would be interested in your opinion about two points.
First, Blackstone makes the acquisition at 26B, records an impairment of 6B and then tries to monetize a part of the investment for an estimated total value of ~21B. What's their motive, and how does impact an IPO investor?
The hotels are trading at a 99% 52w high. For a cyclical industry, isn't that a questionable timing to buy?
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