Why Hilton, Aramark IPOs rose in their debuts

Shares of Hilton Worldwide (HLT) and Aramark (ARMK) climbed in their stock market debuts today as private equity firms, who gobbled up corporations when the economy had its worst slowdown since the Great Recession, looked to cash-in on the surging stock market.

New York-based Hilton, which Blackstone Group took private in 2007 in a $26 billion deal, rose $1.50, or 7.5 percent to close at $21.50, above the hotel chain's $20 offering price. Shares of Aramark, a provider of food service to corporations and stadiums, had an even stronger debut, ending the day at $22.70, up 13.5 percent over its opening price of $20. The Philadelphia-based company went private in 2006 in a $8.3 billion deal lead by Chairman Joseph Neubauer and a group of private equity investors.

Hilton's market capitalization now stands at about $21 billions and Armark's is about $5 billion, which both lag the $28 billion value the market has assigned to Twitter (TWTR), whose shares have more than doubled since its IPO last month. The key difference is that Hilton and Aramark are both profitable and Twitter isn't.

"A hot IPO market where deals are oversubscribed and valuations are lofty shows that there is a level of speculation in the market," said Timothy Griskey, who helps manage $1.5 billion for Solaris Asset Management, in an interview and doesn't own any of stocks discussed here. "To me, it's not speculation like the late 1990s and I hope we don't ever get there... It causes one to pause."

Hilton, the world's largest hotelier, has 65,667 rooms across 90 countries and territories. Among its marquee properties are New York's Waldorf Astoria. Aramark, which operates in 22 countries, provides services to 84 percent of the Fortune 500, more than 2,000 health care facilities and more than 500 elementary, middle and high schools and colleges.

And as Quartz recently noted, there is less to Hilton's IPO than meets the eye.  Blackstone is only selling about 5 percent of the hotelier's shares, which compared with similar deals outside of the technology sector is unusually small. Typically, firms in this situation sell about 25 percent of their shares.

"Selling so few shares in Hilton means Blackstone won't bring in as much capital as it could have, but capital isn't the goal," the site says. "The goal is to help bolster Blackstone's eventual return on a company that it probably overpaid for in the first place."

Though Hilton's business has rebounded and it has restructured $4 billion in debt, a full sale wouldn't give Blackstone the "epic returns" it typically gets, Quartz says.

Given the success of Hilton, Aramark and Twitter, it's safe to assume that the IPO floodgates will open in earnest in the coming weeks and months.
  • Jonathan Berr

Comments