Hilton's IPO was more successful than any other hotel company's in the past decade, thanks to a transformation in corporate strategy. The lessons are still relevant to understanding Hilton and potential IPOs by emerging players.
Hilton’s IPO on December 11, 2013 was the largest ever for a hotel company, and none has beaten it since. Here are 10 key facts and anecdotes framing why it was such a significant moment for the industry.
1. It was the biggest hotel IPO ever.
Hilton raised $2.35 billion when it went public. Since then, the only significant hotel IPO was from Playa Hotels & Resorts, which raised $176 million March 2017. Sonder raised $310 million in a SPAC deal in January 2022.
That’s a humbling track record for hotel companies like Aimbridge, Al Habtoor, Aman, CitizenM, Highgate, Minor, Nordic Choice, Pan Pacific Hotels Group*, Rosewood, and Oyo that might like to go public someday.
For a sense of scale, Hilton went public with an equity value of $19.7 billion. The closest the hotel sector has seen to that since then was in 2021, when Oyo, the India-based hotel company, aspired to have an IPO that would value it at up to $12 billion.
Oyo has since changed its tune. Market turmoil, rising interest rates for debt, and struggles with profitability have slashed Oyo’s aspirations, delaying its IPO plans indefinitely. It was most recently hoping to raise between $400 million and $600 million in the IPO, or a fifth of what Hilton raised.
2. Company culture matters.
Hilton had been flailing in 2007 when Blackstone took it private. Blackstone hired Christopher Nassetta to lead a turnaround.
To fix a broken company culture, Nassetta moved the company from Beverly Hills to McLean, Virginia, a suburb of Washington, D.C., and only brought along 130 of the 600 employees.
From day one, Nassetta’s focus has been on company culture. In a hospitality business, it’s critical to have happy, engaged workers at all levels. Hilton didn’t in 2007.
Hilton was recently named the No. 1 World’s Best Workplace by Fortune and Great Place to Work.
Company culture is often just an empty phrase, so it’s worth dwelling a bit on Hilton’s transformation. Here’s a quote from a 2014 report in the Washington Post on Nassetta’s turnaround of Hilton.
From “Christopher Nassetta: The man who turned around Hilton“
Each geographic region was a self-contained business, independent of the Beverly Hills headquarters. The back-office duplication presented mind-boggling savings opportunities. Each region, for example, had its own information technology, human resources, finance and legal staffs. There was little integration.
Even at the Beverly Hills home office, sales and marketing staffs for the Hilton Honors and Family of Brands occupied different floors.
Nassetta likened the dysfunction to watching rowers when he was a student at UVA.
“You see those guys and they look so good when all the oars are going the same way. You get the right cadence, it’s amazing how fast that sucker moves. And that’s the story of Hilton Worldwide. All the oars were just slapping around.”
More importantly, the California headquarters was mired in lethargy.
“We were complacent. There was no culture of innovation. It was more a culture of do it at a relatively slow pace and do it the way we’ve always done it,” Nassetta said. “It just wasn’t organized in the right way.”
Nassetta became a personnel fanatic, rebuilding his team and getting involved with every management hire.
3. The most profitable LBO in history.
Bloomberg called it simply “The Best Leveraged Buyout Ever.” Blackstone took Hilton private in a $26 billion leveraged buyout (a mostly-debt-financed takeover). It realized a paper profit of at least $12 billion, roughly tripling its initial investment, after the successful IPO.
4. The deal was nearly a disaster.
The 2008 financial crisis slammed the travel sector, with Hilton’s revenue in 2009 falling 15%. Blackstone wrote down the value of its Hilton investment by about 70%.
“I slept like a baby,” recounted Nassetta in an interview with David Rubenstein. “I would sleep for two hours, wake up, cry, sleep for two hours, wake, cry.”
The management and its backers stuck with the plan, though, and in the end, it paid off.
5. Build brands. Rarely buy them.
Blackstone believed it would be more cost-effective for Hilton to invent its own brands rather than acquire new brands.
Hilton has followed that view since the IPO. The company has gone from 10 to 22 brands – including Curio, Tru, Canopy, and Spark – and it’s mostly built them in-house. While its corporate development team does review deals, it has rarely gone ahead with acquisitions.
Hilton’s philosophy contrasts with the acquisition-first approach of most of its competitors in the past decade. Marriott acquired Starwood. Choice Hotels is pursuing Wyndham. Wyndham acquired LaQuinta in 2017. Hyatt has done a series of small tuck-in acquisitions. IHG acquired Six Senses, while Accor did a joint venture with Ennismore.
Nassetta talked about the approach a year ago at Skift Global Forum East in Dubai. “I have a [merger and acquisition] background. We love looking at [potential brands to acquire]. It’s fun to analyze them and we learn things.”
“But the reality is we put [potential transactions] through our filter of how do we deliver the best product for our customer and how do we do it in the way that is most advantageous for our shareholders. Every time so far, and I suspect, that pattern will continue, we determine that we’re better off if we see an opportunity to develop our own brand.”
“[All of our brands are] very successful. Why? Because we have designed these in a modern context around exactly what customers want and we built it out of the dust.”
“We built it with our own blood, sweat and tears, rather than paying a big price. It’s been great for our shareholders infinite yields effectively by creating these and creating brands that really resonate with our customers. I would say that’s why when you look at our market share, you got all the Smith Travel [STR] numbers, you would see on average our brands significantly outperform any other portfolio brands in the business.”
“So, when we look at things, it’s not that we don’t like acquisitions. It’s just every time we look at it we realize everything has… We don’t want to have to go fix other people’s problems when we already have scale and we become very good at organic brand development and we can deliver very precisely what we think best want.”from Full Video: Hilton CEO at Skift Global Forum East 2022
6. Blackstone’s playbook is still relevant.
Bloomberg’s view of Blackstone’s work on Hilton boiled down to this:
“The full story of the richest LBO in history is actually a story of private equity working as advertised. By persuading its lenders to exercise forbearance, restructuring its debt before it had to, and practicing smart management, as opposed to indiscriminate cost cuts and pink slips, Blackstone made Hilton perform better than most thought possible.”
If any other hotel IPO like this is to happen successfully, private equity must study Blackstone’s playbook.
As The Economist put it this year, in surveying the private equity landscape:
“Private equity will be dogged by its folly at the top of the cycle. Growth in assets is likely to be less rapid. And the new phase will favor owners willing to roll up their sleeves and improve operations at the companies they have bought.”
7. Investing in growth.
Private equity firms have a reputation for cutting costs more than for investing in growth. But Nassetta and the company used the proceeds from the IPO not only to pay down debt but to spend on helping the company to expand.
At the time of the IPO, the company had 185,699 hotel rooms under development. Today it has 457,300 rooms under development.
Today, Hilton says it more rooms under construction than any other hotel company, claiming more than 20% of the rooms under construction, according to Lodging Econometrics data.
8. Instilling customer loyalty
One of the goals of the Nassetta team at the time of the IPO was to boost repeat customers. A decade ago, the company had only 39 million members in its loyalty program, then called HHonors.
Hilton’s loyalty program, now called Hilton Honors, now has more than 173 million (as of September 30, the lastest data publicly available).
The points-based loyalty program, and the relationship with co-branded credit cards, encourages more spending by existing customers. This process reduces the marketing expense per guest that Hilton needs.
9. Investing internationally can be key.
Before Blackstone’s takeover, Hilton as a company had essentially given up on international expansion. In the 1960s, Hilton’s leadership spun off its international operations into a separate company, partly becuase of family tensions and internal rivalry in management, according to Hilton vs. Marriott — the latest season from Business Wars, a show from Wondery.
That eventually led to the international Hilton business evolving separately and out of sync with the U.S. one. In 2005, shortly before Blackstone got involved, Hilton recquired its international business.
Nassetta saw overseas growth as key. In the past decade, Hilton has grown into more than 30 new countries and territories, to a total of 124.
10. Shareholders can benefit from a savvy hotel IPO.
A lesson investors can draw from the Hilton IPO is that a well-priced public debut at a well-run company can be a promising investment over the long term.
*Correction: The article originally said Pacific Hotels Group instead of Pan Pacific Hotels Group.
Marriott Vs. Hilton: A Battle of Net Unit Growth
Marriott’s scale and skew to slower growing segments has meant it has lagged behind its closest competitor Hilton on net unit growth for many years. Whilst its exposure to luxury historically disadvantaged growth, renewed interest in the development of luxury hotels post Covid will likely aid Marriott in bridging the unit growth gap with Hilton.
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Photo credit: Hilton CEO Christopher Nassetta joins colleagues above the opening bell of the New York Stock Exchange this month in honor of the 10th anniversary of the hotel company debuting on the public markets. Source: NYSE.