Hotel operator Hilton Worldwide raised $2.34 billion in its IPO on Wednesday, returning to the public markets some six years after Blackstone Group (BX) took it private in one of the largest deals of the leveraged buyout boom.
Hilton, whose brands include such high-end names as Conrad and Waldorf Astoria, priced its shares at $20, within the expected range, and gave the world’s largest hotel operator an equity value of $19.7 billion. The stock will begin trading on the New York Stock Exchange on Thursday under the ticker symbol “HLT.”
Blackstone took Hilton private in 2007 for $26.7 billion, including debt, at the height of the market. The financial crisis hit soon after, leaving the company facing a large debt pile due to the leveraged buyout and a recession that hit business. Blackstone refinanced about $13 billion of the hotel chain’s debt before launching the IPO.
It also plans to use the proceeds from the offering to repay $1.25 billion in debt.
“Blackstone must be wiping their brow knowing that the company had a label since they bought it at the top [of the market],” said David Menlow,
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president of IPO research firm IPO Financial Network. “Even with the markets changing the way they have, it’s been a beneficial outcome for them.”
Blackstone has invested in total about $6.4 billion in Hilton, and the 76.2 percent stake its funds will hold after the IPO would be worth about $15 billion, meaning it is on course to make more than 2.3 times its money. This means that Hilton ranks as one of the most successful private equity deals of its size.
Hilton and existing shareholders sold 117.6 million shares in the IPO, the second-largest float this year behind oil pipeline holding company Plains GP Holdings (PAGP).
Hilton had initially offered 112.8 million shares at an expected range of $18 to $21. But a source familiar with the IPO said the float was oversubscribed by around 10 times, meaning investor demand far outstripped supply.
Hilton, which was founded in 1919 by Conrad Hilton, operates in 90 countries, has more than 4,000 hotels and 670,000 rooms under its umbrella. The company itself owns or leases 157 hotels, including the Waldorf Astoria in New York and the Hilton Hawaiian Village.
Hilton’s IPO comes as the U.S. hotel industry has been recovering along with the economy, with room rates and occupancy levels expected to increase in 2014, according to PricewaterhouseCoopers. The Dow Jones U.S. Hotels index has risen nearly 30 percent so far this year. It also comes amid a surging IPO market, spurred by a market rally and low interest rates.
Several private equity firms have taken advantage of favorable markets to sell or list assets. Another Blackstone-backed hotel company, Extended Stay America (STAY), raised about $565 million in November. Blackstone also plans an IPO of hotel chain La Quinta, sources previously told Reuters. The investment firm also listed Brixmor Property Group earlier this year.
Deutsche Bank (DB), Goldman Sachs Group (GS), Bank of America (BAC) and Morgan Stanley (MS) led the Hilton offering.
Warren Buffett is a great investor, but what makes him rich is that he’s been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.
Most people don’t start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That’s unfortunate, and there’s no way to fix it retroactively. It’s a good reminder of how important it is to teach young people to start saving as soon as possible.
1. Compound interest is what will make you rich. And it takes time.
Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That’s really all there is to it.
The dividend yield we know: It’s currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That’s totally unknowable.
Earnings multiples reflect people’s feelings about the future. And there’s just no way to know what people are going to think about the future in the future. How could you?
If someone said, "I think most people will be in a 10% better mood in the year 2023," we’d call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.
2. The single largest variable that affects returns is valuations — and you have no idea what they'll do
Someone who bought a low-cost S&P 500 index fund in 2003 earned a 97% return by the end of 2012. That’s great! And they didn’t need to know a thing about portfolio management, technical analysis, or suffer through a single segment of "The Lighting Round."
Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return — still short of an index fund.
Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it’s not like golf: The spectators have a pretty good chance of humbling the pros.
3. Simple is usually better than smart
Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time — every single time — there’s even a hint of volatility, the same cry is heard from the investing public: "What is going on?!"
Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.
Since 1900 the S&P 500 (^GSPC) has returned about 6% per year, but the average difference between any year’s highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.
Someone once asked J.P. Morgan what the market will do. "It will fluctuate," he allegedly said. Truer words have never been spoken.
4. The odds of the stock market experiencing high volatility are 100%
The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.
You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he’ll receive, even though it makes him more likely to be wrong.
This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.
"Everything else is cream cheese."
5. The industry is dominated by cranks, charlatans and salesmen
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