Hotel & Motel Management - September 18, 2007 - (Page 14)

14 On Finance IN THE details Deal looks good for Hilton Opportunity for growth Franchisees should beneﬁt Still room for more buyouts By James Merkel H&MM Columnist H&MM September 18, 2007 | HotelMotel.com www.HotelMotel.com/digital_edition Blackstone deal keeps spotlight on industry he mega private equity deals that have become commonplace over the past 12 months ﬁnally touched the hospitality industry in early July with The Blackstone Group’s announcement that it is acquiring Hilton Hotels Corp. for about $26 billion. How does this impact Hilton as a company and a brand as well as the in- T dustry at large? And what is the impact on the capital side of the business? Expect the strategic direction of Hilton to remain relatively unchanged, with the focus on growing the fee-based portion of the business. That growth should be accelerated because Blackstone is able to be more nimble and identify opportuni- ties where it can leverage its capital with a focus on long-term value creation versus the quarterly focused and leverage adverse public markets. Since this is Blackstone’s ﬁrst acquisition in the hospitality industry that does not feature company-owned properties, it will be interesting and worth watching how Blackstone han- dles the nonasset-based portion of the business. Hilton is a major franchise organization, which is a material difference and requires a different mentality for growth. However, Blackstone will beneﬁt from a signiﬁcant and growing franchisee base that is sure to identify opportunities to expand the brand family domestically and internationally and should have adequate access to capital to do so. Blackstone’s investment represents a strong vote of conﬁdence in industry fundamentals. Such conﬁdence and its ability to grow the brand is evident by its willingness to receive debt ﬁnancing commitments for 80 percent of the transaction value given such leverage is thinly supported by the operating cash ﬂow guidance previously provided by Hilton management. Blackstone’s investment also signals to the market that there are still attractive investment opportunities and provides further credibility to the hotel industry as an attractive investment class for those who have not yet seen the light. Is this deal an anomaly in the industry or can we expect more deals to come down the pipe? Could Marriott International, InterContinental Hotels Group or Starwood Hotels & Resorts Worldwide be next? Starwood represents the company that looks most similar to Hilton with a signiﬁcant portion of its revenue and cash ﬂow coming from owned properties. As a result, similar to Hilton, the opportunity exists to shift the focus from owned hotel cash ﬂow to fee-based cash ﬂow and the ability to achieve the valuation premium historically enjoyed by Marriott. The credit concerns that have caused the recent market turmoil might keep any deals from being announced in the near term, but I expect the spotlight to remain on the hotel industry for the attractive investment opportunities it presents, both big and small. hmm@questex.com James T. Merkel is managing director of Columbus-based RockBridge Capital LLC. He can be reached at (614) 246-2505. CIRCLE NO. 146 http://HotelMotel.com http://www.HotelMotel.com/digital_edition

Table of Contents Feed for the Digital Edition of Hotel & Motel Management - September 18, 2007

Hotel & Motel Management - September 18, 2007 Contents Vista Inns Redefines Business Model Conley Applies Satisfaction Theory to Boutique Hotels Questex Acquires Oxford Publishing Perspective At Your Risk Consultant’s Corner Sales Clinic Travel Trends On Finance Franchise Law Cornell Insights HotelWorld Update Training Trends Satisfaction Trends Management Trends Speakers Named, Registration Open for IH/M&RS Going Green Saves Green Trends & Stats Vacuums Go the Extra Mile Transactions Offsetting Emissions is Newest Sustainability Initiative Minibar Advancements Supplier News People on The Move ADA Compliance Can Be Easier With Programs Business Travelers Interested in Remote Check-In/Out Awards Markets Dictate Renovations vs. New Builds More Development Opportunities Available Top Hotel Companies Survey The Lodging Conference Previews Ad/Editorial Index Marketplace Classifieds Checking Out

Hotel & Motel Management - September 18, 2007

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