On Tuesday, after the close of the market, Hilton Hotels Corporation (HLT) announced that the company had agreed to be acquired by the Blackstone Group (BX), a private equity firm that recently went public via a much-publicized initial public offering. Blackstone agreed to pay approximately $26 billion for Hilton, including the assumption of Hilton's debt. The cash offer of $47.50 per share represented a premium of 32% over Tuesday's closing price, and a 40% premium to Monday's closing price, as the shares were up strongly on Tuesday ahead of the deal announcement.
The Hilton acquisition is the latest in a string of hotel company buyouts, ranging from large brands such as Four Seasons, to smaller hotel real estate investment trusts (REITs) such as Winston Hotels, Innkeepers USA Trust, and Equity Inns. This acquisition activity, and the premiums at which the deals have been accomplished, indicate that institutional buyers continue to place higher valuations on the hotel assets than are currently being afforded in the public markets. The attributes of the hotel companies, including tangible real property and strong cash flow generation, have proven to be in high demand.
Blackstone has been one of the largest buyers of hotel-sector assets in recent years. Blackstone currently owns more than 100,000 hotel rooms throughout the U.S. and Europe, and its portfolio spans the spectrum of lodging industry. Blackstone owns the La Quinta brand, and has grown that brand by 45% in roughly a year and a half since its acquisition. The company also owns numerous luxury properties through its LXR Luxury Resorts portfolio. The acquisition of Hilton significantly increases Blackstone's presence in the lodging industry.
The largest immediate impact, as was seen in Thursday's trading, will likely be to shares of Starwood (HOT) and Marriott (MAR), given their size and position as franchisors, like Hilton. Speculation will now turn to other potential buyout candidates. Starwood has been the topic of buyout speculation since the company's CEO stepped down earlier this year.
If one of the remaining large-cap lodging companies were to be acquired, we think it more likely that a group of investors would potentially be involved, as opposed to the Hilton deal where Blackstone was the sole buyer. Blackstone's size and interest as a strategic buyer put it in a somewhat unique situation in that regard.
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Read the analyst report on HOT
Read the analyst report on MAR
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