It’s the sort of price tag rarely seen in today’s private equity industry: $26.7 billion. That’s how much Blackstone paid to acquire Hilton Hotels (NYSE: HLT) in 2007, during the early stages of a worldwide economic unraveling that ultimately led to the financial crisis. Similar deals that closed at a similar time—such as TPG and Apollo Global Management’s $27.8 billion buyout of Caesars Entertainment—ended in disaster. Blackstone, though, has managed to turn lemons into some very lucrative lemonade.

Blackstone

The newly announced sale of a 25% Hilton stake to China’s HNA Group for $26.25 per share in cash, or about $6.5 billion, is just the latest proof of Blackstone’s success.

The years immediately following Blackstone’s acquisition were far from easy. Hilton and its new financial backer struggled under a typically massive debt load in 2008 and 2009, and with the crisis putting a drain on travel, revenues at the company’s hotels were on the decline.

It was then, according to this illuminating Bloomberg breakdown of the deal, that Blackstone’s management went to work earning its fees. On the financial side, the firm negotiated a beneficial restructuring of Hilton’s debt, injecting more than $800 million in fresh equity in the process. Operationally, newly installed CEO Christopher Nassetta engineered a turnaround, leading rapid international expansion and a quick increase in profits.

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The remaking of Hilton was so successful that, by 2013, the company was poised for a return to the public markets just six years after Blackstone’s take-private acquisition. The IPO was a runaway success, raising about $2.35 billion and reportedly resulting in about $8.5 billion in initial paper profits for Blackstone. The $26.25 sale price agreed to with HNA Group on Monday represents a 15% premium to Hilton’s closing sale price last Friday and a 31% increase over the company’s original IPO price in 2013.

Blackstone will still own a 21% interest in Hilton after the sale—which means the opportunity for more portfolio-swelling profits hasn’t passed the firm by just yet.

Article by Kevin Dow, PitchBook

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