This is the first in a series of Hyatt posts we will provide ahead of the IPO. A top notch hotel company finally going public, but at a fundamental low point for the industry. Does that make sense? We think so.
On August 5th Hyatt filed an S-1 or a preliminary offering memorandum, to sell approximately $1.15BN of Class A shares. Given the weak lodging fundamentals, many investors are probably scratching their heads wondering why now?
In contrast, we think the timing is right:
- Despite the weak fundamentals, valuations for lodging companies look rich
- HOT is trading over 11x 2009 EBITDA
- MAR trading at roughly 12.5x
- HST is trading north of 13x
- Valuations look even richer if you consider 2010E EBITDA which we believe will be lower than 2009 EBITDA for most lodging companies
- Liquidity event for certain Pritzker family members - The Pritzker family has an agreement in place to divide the empire amongst 11 cousins by 2011. Letting the public determine the value of Hyatt Hotels Corporation is a more impartial way of pricing this piece of the empire
- We understand that one of the two other main investors, Goldman, is also pressing for a liquidity event
- Having a public vehicle is probably the easiest way to raise additional capital to pursue acquisitions
- One of Hyatt’s goals listed in the Business Strategy section of the S-1 is to “Pursue Strategic Acquisitions and Alliances”
- As we wrote in “PICKUP IN LODGING DEFAULTS” earlier today, the pickup in large hotel loan defaults means that we should start seeing some attractive deals come to market as banks look to unload these assets
Notwithstanding the public offering, the Pritzker family will still retain control of the company through a dual class voting structure where the existing Class B shares will have 10:1 voting power. The family, along the other two large holders, Goldman and Madrone GHC, have also agreed to vote their shares as a block when it comes to matters concerning asset sales and acquisitions. Another issue for potential investors to consider is the overhang of share sales by existing holders. Currently, Pritzker family members are restricted to selling up to 20% of their holdings each year through 2015, unless the board decides otherwise.