Jon Gray Risked It All, And Made $14 Billion
At one point the investment was marked down by 71%...
Good morning, everyone.
This week’s newsletter includes: a 38-year-old Jon Gray at Blackstone making one of the biggest gambles in real estate history…and losing. But then coming back to win in an unbelievable way.
The Hilton Turnaround: From Disaster Deal to $14 Billion Profit
In 2007 Blackstone bought Hilton, but CEO Steve Schwarzman thought it was a catastrophic mistake. What followed was the most dramatic turnaround in private equity history...
Shortly after Blackstone bought the Hilton hotel chain for $26 billion, the 2008 financial crisis hit.
Tourism plummeted.
The hospitality industry was on the brink.
Media commentators branded the acquisition a “disaster”.
At one point, sentiment was so bad that Blackstone wrote down the Hilton investment...by an eye-watering 71%.
Steve Schwarzman, Blackstone’s CEO, said:
“We thought we had made the worst private equity deal in history!”
Jon Gray was Blackstone’s up and coming Global Head of Real Estate at the time.
At just 38-years-old, Jon was pushing hard to make the deal happen. Despite the incredibly negative environment, the young exec was confident in his strategy.
However, there was a huge problem: Hilton’s debt was enormous.
They needed to buy some time, otherwise sky-high debt repayments would destroy the company.
After the acquisition Blackstone immediately negotiated with lenders to refinance, cutting interest costs by buying back its debt at steep discounts.
They invested $800million into the company, and branched out into new, untapped markets like China and India.
Anywhere where tourism was growing, Hilton was there.
New leadership was put in place, with industry veteran Chris Nassetta installed as new CEO & President.
Jon pushed Hilton to invest heavily in technology and customer loyalty, introducing new reward points programs, new digital room keys and automating check-in/check-out processes.
In 2013, Blackstone took Hilton public.
And in 2018, they fully exited the investment...making over $14 billion in profit.
It remains one of the most profitable private equity deal in history.
Jon summarized that manic period and incredible turnaround:
“The deal felt crazy given the financial climate. But sometimes, the most challenging situations lead to the most significant successes.”
Recommendation’s
If you have 30mins, this interview with Jon is great. Btw, keep an eye out for interviewer John Waldron at Goldman, very impressive individual. If you have 3mins but want to know more about the Hilton deal, check this out.
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