Hilton Worldwide’s initial public offering strategy followed a similar path many other companies have taken to move from private to public.
A publicly owned company has easier access to capital for operations. Private companies become public by way of an IPO, which is a company’s first offering of its equity to public investors.
Prior to an IPO, companies start the groundwork toward becoming a publicly traded company by shifting their main focus to maximize shareholder value and developing an effective growth strategy which persuades potential investors that the company is profitable and can become even more profitable, according to Investopedia, an online resource about investment and finance.
In Hilton’s case, before being acquired by Blackstone Group LP, the company aimed to fix the fact that departments were in silos and suffered from misalignment. Executives down to property-level associates, were not serving the company with a common cause, CEO Chris Nassetta said in May.
Nassetta worked during the past seven years to fix that.
“You need to have intense alignment around that. Everybody needs to know it … what we are, what we stand for and what are the key things we’re trying to get done,” he said. “If you can do that … then you’ll succeed.”
After completing groundwork for an IPO, companies begin focusing on maximizing investor confidence and credibility to ensure the offering will be successful. Nearly all companies wishing to go public hire an investment bank to help sell the shares, according to Investopedia.
Accordingly, Hilton hired four banks—Deutsche Bank, Goldman Sachs, Bank of America Merrill Lynch and Morgan Stanley—in early August.
During the IPO process, companies and the investment bank will meet to negotiate the deal, discussing items such as the amount of money a company will raise and the type of securities to be issued. The investment bank then puts together a registration statement to be filed with the U.S. Securities and Exchange Commission.
Blackstone filed its registration statement Wednesday with the SEC for an IPO with an initial value of $1.25 billion, which the filing explains is “estimated solely for the purpose of determining the amount of the (SEC) registration fee.”
The SEC then requires a cooling off period, in which it investigates and ensures all material information has been disclosed. Once the SEC approves the offering, a date is set when the stock will be offered to the public, according to Investopedia. During the cooling off period, the underwriter puts together what is known as the red herring, which is an initial prospectus containing all the information about the company except for the offer price and the effective date.
Blackstone’s SEC filing did not disclose the number of shares on offer or its expected price. The amount of money a company says it plans to raise in its first IPO filings is used to calculate registration fees, and the final size of the IPO could be different.
Finally, the underwriter and company take the red herring on a “road show”—meeting with big institutional investors—to build up interest for the stock issue. The success of the road show, along with market conditions, help determine the stock price, which will be announced as the effective date approaches.
Hotel-related IPOs in 2013 are tied to attractive valuations and strong performance within the industry, analysts said.
“You’re getting mid-cycle cash flows and valuations at premiums to historic levels, which is typically primed for companies to go public,” Ryan Meliker, managing director of REIT research and lodging research at MLV & Company, told Hotel News Now in July.
