Blackstone’s acquisition of Hilton Hotels marked one of the most successful LBOs in history and showcased how exceptional execution can overcome terrible timing. Despite acquiring Hilton at one of the worst possible times, in 2007 right before the 2008 Great Financial Crisis, Blackstone was able to turn their investment around using strategic vision, financial engineering, and operational efficiency to transform this undoubted failure into one of the most profitable private equity deals in history. The deal ultimately generated approximately $14 billion in profit for Blackstone over 11 years, representing a 3x return on investment with an internal rate of return (IRR) of approximately 16% annually.

The Strategic Vision (2006-2007)

Jonathan Gray, leading Blackstone’s real estate division at the time (currently President & Chief Operating Officer), saw an investment opportunity in the leading hotel brand Hilton. While Hilton remained among the biggest hotel brands delivering investors almost 20% returns, they were facing operational inefficiency and lower EBITDA multiples than its competitors. The company had many balkanized regions of disconnected hotel chains and no central accountability, allowing competitors like Marriott to catch up.

Gray saw a vision for expanding the Hilton brand through an asset-light model (meaning allowing franchisees to own the hotels), brand expansion across international countries, and reorganizing the management structure.

Before the deal took place in 2007, Hilton’s global presence owned 2,800+ hotels across 76 countries with over 480,000 rooms. The hospitality market had been favorable in the past few years, being the third consecutive profitable year for the hospitality sector and an uptick in private equity investment. Blackstone currently held an extensive hotel portfolio including The Boulders, Boca Raton, and La Quinta, which they had already seen a 45% expansion since Blackstone’s 2006 acquisition.

The Deal Structure

The deal was announced on July 3, 2007, in an all-cash $26 billion transaction. The financing structure was made up of debt: $20.5 billion (78.4%) and solo equity investment from Blackstone of $5.6 billion (21.6%). The debt package was provided by a syndicate of 26 major financial institutions, including lead arrangers: Bear Stearns, Bank of America, Deutsche Bank, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley.

The Crisis Period (2008-2010)

The deal was planned to be a large success until just a few months later the credit markets started deteriorating and turned into a major financial crash. The timing couldn’t have been worse. What had seemed like a well-calculated risk became a nightmare scenario as the entire financial system collapsed.

Hilton was hit devastatingly hard. There was a 20% drop in global revenue within 18 months and a 40% decline in earnings as business and leisure travel plummeted. The company’s massive debt load, which had seemed manageable in the booming 2007 market, suddenly became an existential threat as refinancing became nearly impossible. Blackstone was forced to write down the value of its Hilton investment by approximately 70%, with $5.6 billion written off Blackstone’s balance sheet.

The tourism and hospitality sectors were among the most severely affected industries during the recession. Several of the lenders who had participated in the original acquisition faced severe economic distress, including Lehman Brothers, who went bankrupt, and Bear Stearns and Merrill Lynch, who were sold off in emergency sales. This meant that even the syndicate that had financed the deal was crumbling.

The pressure was immense on the newly appointed CEO Christopher Nassetta, who later described the emotional toll: “I slept like a baby,” Nassetta recounted in an interview with David Rubenstein. “I would sleep for two hours, wake up, cry, sleep for two hours, wake up, cry.” It was during this darkest period that the foundation for one of private equity’s greatest comebacks was being laid.

The Turnaround Strategy

With all this friction, Blackstone took the bold move to double down on their investment. Jonathan Gray, the deal architect, hired Christopher Nassetta from Host Hotels & Resorts to take over as CEO in October 2007, shortly after the deal closed on October 24, 2007. Blackstone cut out 80% of the previous management team and completely restructured the organizational culture.

In 2010, Blackstone restructured their debt by negotiating a deal to buy $1.8 billion of mezzanine debt for $819 million (54% discount). They also converted $2 billion of junior mezzanine debt to preferred stock, cutting out almost $4 billion of debt from Hilton’s balance sheets and significantly reducing interest payments.

Under the new CEO’s leadership, the transformation was dramatic and comprehensive. Nassetta spent his first 90 days touring Hilton properties worldwide, talking to managers, bellhops, and cooks to understand the dysfunction. What he found was alarming: “We were complacent. There was no culture of innovation. It was more a culture of do it at a relatively slow pace and do it the way we’ve always done it,” Nassetta explained. “It just wasn’t organized in the right way.”

The company was operating like separate fiefdoms with no coordination. Nassetta famously described the situation using a rowing analogy: “You see those guys and they look so good when all the oars are going the same way. You get the right cadence, it’s amazing how fast that sucker moves. And that’s the story of Hilton Worldwide. All the oars were just slapping around.”

The turnaround strategy focused on three core pillars. First, they created a unified and accountability-focused culture, replacing the balkanized regions with central coordination. Nassetta built the philosophy around “the business of people serving people,” recognizing that “it’s all about the people. In the end, I have the good fortune of running this very big business with 400,000 people that are serving people every day.”

Second, they aggressively pursued an asset-light model, allowing franchisees to own the hotels while Hilton focused on brand management and systems. This dramatically reduced capital requirements while expanding reach.

Third, they embarked on unprecedented expansion and innovation. Under Nassetta’s leadership, Hilton grew from 3,700 hotels when he joined to over 6,100 properties—a 65% increase. They created 8 new brands, nearly doubling their brand portfolio, and opened more than one hotel per day since 2015. The company expanded into 30+ new countries and territories, particularly into emerging markets, while significantly investing in digital mobilization and loyalty programs that would become industry-leading.

The Exit Strategy (2013-2018)

After a period of successful leadership and corporate strategy, Blackstone was able to put Hilton back on the public market. Their IPO was on December 12, 2013, offering $2.35 billion (largest hotel IPO in history). The valuation of the company also increased $7 billion from the time it was acquired by Blackstone in 2007.

Blackstone’s exit strategy started in June 2014 when Blackstone began selling down its position. From 2014-2017, they executed gradual stake reduction through secondary offerings. In May 2018, they completed their final exit by selling the remaining 15.8 million shares (~5% stake) for a value of $1.32 billion for the last tranche.

Results and Legacy

The Blackstone-Hilton acquisition represents the pinnacle of private equity success, demonstrating how exceptional execution can overcome terrible timing. Despite acquiring Hilton at the worst possible moment, immediately before the 2008 financial crisis, Blackstone’s combination of strategic vision, operational expertise, and financial engineering created the most profitable private equity deal in history.

Blackstone was able to produce a $14 billion profit (largest absolute gain in PE history), achieving a 3x multiple and 16% IRR over 11 years while transforming the industry and converting Hilton into a global powerhouse.

The deal stands as a testament to the power of private equity when applied with skill, patience, and the right operational strategy. It established Blackstone as the preeminent hospitality investor and created a playbook for value creation that continues to influence the industry today.