Blackstone Orchestrates “The Best Leveraged Buyout Ever”

In a recent issue of Bloomberg Businessweek, contributing editor William Cohan recounts how The Blackstone Group executed one of the most successful leveraged buyouts of all time. According to Cohan, Blackstone’s revamping of Hilton Worldwide Holdings into a thriving hospitality giant is a “story of private equity working as advertised.”

Jonathan Gray, Blackstone’s Global Head of Real Estate, was the chief architect of the deal. Gray appointed Christopher Nassetta as Hilton CEO, and the pair instituted a number of strategic changes at Hilton. They expanded the company’s international presence, increased the number of available rooms, and made personnel changes in leadership. Just as important, they turned Hilton’s culture into one of integration, alignment and performance.

“[This] didn’t happen overnight,” Nassetta noted. “It happened by grinding it out. We were making progress each year. While we were doing restructuring, while the world was upside down, we redoubled efforts…While we cut significant costs out of the business, we reinvested huge amounts into its growth.”

One of the most remarkable aspects of this private equity success story is that the deal was executed at the onset of the financial recession. Blackstone bought Hilton in 2007 and was able preserve the company through a number of difficult economic years.

By the end of the summer of 2013, Hilton had reached an impressive level of profitability. Its revenue for 2012 was $9.3 billion—up from its 2011 revenue of $8.7 billion—and its ratio of debt to earnings had declined significantly. The day that Blackstone took Hilton public in December of 2013, its stock closed at $21.50, making its equity value close to $20 billion. As Cohan puts it, “Blackstone made Hilton perform better than most thought possible.”

Eventually, as Hilton’s stock rose, the Blackstone leveraged buyout became regarded as one of the financial world’s most profitable deals.