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Apollo Group looking to buy HGVC [Merged]

Discussion in 'Hilton Grand Vacations Club / HGVC' started by toontoy, Aug 20, 2019.

  1. nuwermj

    nuwermj TUG Member

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    At Diamond the requirement is 2 hours (and no ER dollars):
    "Presentation: attendance at a timeshare sales presentation lasting 120 minutes is required."
    https://www.diamondresorts.com/diamond-resorts-concert-series-terms-and-conditions
     
  2. brp

    brp TUG Member

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    The HGVC presentation lists a longer time as well. Usually pretty easy to get out early. Harder to scam ER dollars, though...

    Cheers.
     
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  3. Ralph Sir Edward

    Ralph Sir Edward TUG Member

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    All names with money are now on the table, as HGV has formally announced it is now "exploring strategic alternatives".

    Don't count out MVC, if they can fund the bid. That would give MVC a near monopoly on the high-end timeshare market. . . .
     
  4. CalGalTraveler

    CalGalTraveler TUG Member

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    MVC (or Wyndham or DVC) could buy HGVC but Hilton would remove license rights. No problem re-branding the standalone properties to MVC as they are equivalent quality (Wyndham would be a bigger issue), however the HGVCs that are integrated with flagship hotels such as mid-town Manhattan, Waikoloa/Ocean Towers and HHV would present a confusing branding issue for Hilton Hotels and they would seek to either split the portfolio and keep those properties under their management, or attempt to block the entire transaction.

    Given MVC is still digesting the ILG acquisition, they may not have an appetite for this. Although I prefer this scenario over Diamond, I consider it a low probability.

    Compared to an MVC purchase scenario, Diamond presents less of a threat to Hilton because they are not a competing hotel brand. Diamond properties could be an additional source of licensing revenue if certain Diamond properties are renovated up to Hilton standards e.g. the Embarc/Intrawest portfolio would be an easy fit. The new entity could sell/spin off resort management contracts from lower quality, less profitable or hard to sell resorts in Diamond or HGVC to fund the upgrades and renovations for the properties they wish to keep.

    Hopefully Hilton would insist that any new entity keeps current HGVC management in charge and remove the inept slimeball Diamond executives to avoid damage to the Hilton brand reputation.
     
    Last edited: Aug 30, 2019
  5. Ralph Sir Edward

    Ralph Sir Edward TUG Member

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    I re-read post #53 with the exact verbiage. Hilton cannot block a merger, they can only block the usage of the Hilton naming. I doubt that would stop, say, MVC. It already has a well-known name in the space, and could just re-name all the Hilton properties. . .
     
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  6. CalGalTraveler

    CalGalTraveler TUG Member

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    OTOH...MVC may view this as a threat because HGVC + Diamond adds a sizeable competitor targeted at a similar demographic. Buying out HGVC or parts of HGVC (i.e. x hotel based properties) could eliminate or hobble that threat.

    It would be good to know how significant the HGVC licensing revenue is to Hilton. This could drive their thinking. If it is significant it could drive toward a Diamond deal. Licensing would provide a nice cushion during a downturn. If it is insignificant they may not care about eliminating the non-hotel properties.
     
    Last edited: Aug 30, 2019
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  7. dayooper

    dayooper TUG Member

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    I would think Wyndham would want an entrance into the more upscale market and HGVC would give them that. I’m sure there is a way to keep the Hilton branding, at least on the integrated resorts. As far as MVC goes, they are announcing their integration plan with ILG in October. Already being through that mess, they now have a workable framework on how to go about integrate another system.

    I want things to stay the same. After research, HGVC was the only system I thought was worth while purchasing (at least for my family’s situation). I hope things don’t change too much if/when something happens.
     
    Last edited: Aug 30, 2019
  8. nuwermj

    nuwermj TUG Member

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    MVC took on quit a bit of debt in order to acquire ILG. They would have problems financing the $2.8 billion needed to acquire HGV. And if there is a bidding war the price will be much higher -- HGV has an enterprise value of $4.4 billion. I'm not sure Wyndham would be able to pull off the financing either, but I know less about their financials. I think private equity is the most likely party to win the bid -- Apollo or another firm.
     
  9. CalGalTraveler

    CalGalTraveler TUG Member

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    $4.4 billion is a big but not impossible pill for any PE firm to swallow. Ironically, Hilton Hotels was one of the largest leveraged buy-outs in 2007 by Blackstone at $20.2B. But that's before the hotel buildings were spun off the balance sheet. So they used those assets to secure the loans.

    The strange thing about HGVC is that it is primarily a services business - the buildings are mostly owned by the TS owners, so there is not much of an asset base for loan collateral other than inventory on hand. If the new entity defaults on a loan, a lender cannot foreclose the deeds of owners.
     
    Last edited: Aug 30, 2019
  10. CalGalTraveler

    CalGalTraveler TUG Member

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    Here is a list of the Top Private equity firms as of 2017 (source Wikipedia)

    upload_2019-8-30_9-58-24.png

    Based on these figures if Apollo pays $4.4 billion for HGV that's almost one fifth of their capital raised in 2017. Combined with Diamond holdings ($2.2 invested) that's significant exposure in one industry. They may syndicate the buy-out with another PE firm, (perhaps Blackstone?) to make the deal happen and to reduce their portfolio risk.

    I could envision Blackstone getting involved in the deal at some point given they financed the construction of W57 and led the the Hilton buy-out in 2007 so they understand the business.

    Perhaps the leaked announcement was a bluff for Apollo to prod Blackstone or Hilton Hotels to chip in to make a deal happen. i.e. Apollo is bluffing because they don't have enough capital or don't want to invest the entire capital for the reasons above to fund the buy-out so they leaked this announcement as a way to start the process of syndication and to push HGV and Hilton against the wall.

    If the deal falls through, I expect that HGVC would continue to operate as they do today as a public company. HGV countered and opened the floodgates yesterday with their announcement. Let's hope the HGV stock continues to rise as suiters bid up the price!

    Alternatively, Apollo is in deep trouble with Diamond and could sell parts of the portfolio. I could see Blackstone and HGV/Hilton negotiate with Apollo to buy out the nuggets (e.g. Embarc, KBC etc) from the Diamond portfolio (up to $2.2B to cover/offest the investment for Apollo) and spin off the rest. Apollo gets an exit which frees up capital for their next deal. HGV gets more properties and locations and Hilton keeps control of their brand with a partner they trust.



    NOTE: Private equity is not my wheelhouse so perhaps I have the financing model wrong...this is merely an opinion.
     
    Last edited: Aug 30, 2019
  11. terces

    terces TUG Member

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    Does anyone know if HGVC is bound to continue honoring membership in the Club, or do they have some weasel clauses in our agreement that would enable them to force everyone into a trust?
     
  12. CalGalTraveler

    CalGalTraveler TUG Member

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    LOL to paraphrase from a famous line:

    There are only two things in life that are guaranteed when you own a timeshare...your deeded week and maintenance fees!

    Short answer: Although they can drastically change, it would not be good business.
     
    Last edited: Aug 30, 2019
  13. nuwermj

    nuwermj TUG Member

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    Hi CalGalTraveler. I'm not sure I understand your point. Are you suggesting that $4.4 billion is not too large of an amount for MVC or Wyndham?

    Also, I didn't mean to suggest that private equity would pay $4.4 billion. They will want to buy at a lower price and sell for a profit at the $4.4 billion valuation. I only meant to say that there is room for bidding between $2.8 billion (today's market capitalization of HGV) and $4.4 billion (today's enterprise value of the company). So something like $3 or $3.4 billion might be the final sales price.

    I'm reproducing below a summary I wrote in 2016 about the details of the Apollo DRI leveraged buyout. I can see any private equity firm doing this, but I don't see how MVC or Wyndham Destinations can do it.

    "Apollo Global’s acquisition of Diamond Resorts was organized as a “leveraged buyout”. Here’s how the deal worked:

    "Apollo created a shell company called Dakota Parent. Four of Apollo’s investment funds own this company. Dakota Parent created a wholly owned subsidiary called Dakota Sub. Dakota Sub borrowed $2.2 billion dollars (a big chunk of it, $1.1 billion, from the four Apollo funds) and bought 100% of the DRI shares — 72.7 million shares at $30.25 each. Then DRI merged into Dakota Sub, changed the company name to Diamond Resorts International, and thereby took on all Dakota Sub’s debt. This is the way leveraged buyouts typically work.

    "Now that all is said and done, DRI is a wholly owned subsidiary of Dakota Parent. The equity in Dakota Parent is owned by the four Apollo funds. Diamond has $2.2 billion debt on which it must make interest payments. The primary lenders are the four Apollo funds. They are in for $1.1 billion, $500,000,000 at 7.75% and $600,000,000 at 10.75%. The secondary lenders are in for $800 million, and another $200 million is secured by some DRI assets (which are consumer loans).

    "There are two ways Apollo makes money on this deal assuming all goes well. First, the four Apollo investment funds receive interest income out of DRI’s cash flow. They are guaranteed $103,250,000 per year. High profits or low profits, it doesn’t matter, Apollo gets paid. Further, the Apollo investment funds own a claim to all the equity growth of the company (that is all value over $2.2 billion). Thus, if they can sell the 72.7 million shares for $45 each, not an unreasonable number if all goes well, Apollo’s capital gain will be about $1 billion."
     
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  14. CalGalTraveler

    CalGalTraveler TUG Member

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    @nuwermj Actually I wasn't referring to MVC or Wyndham. I was referring to PE firms. Will edit the post to be more specific.

    Thanks for clarifying on the valuation and the Apollo/Diamond deal background. Will review. How are you getting to the $4.4 billion figure? Is the $2.8B based on today's stock price?

    My point is even with an HGV sales price of $3 to 3.4 Billion, combining that with the $2.2 Billion investment in Diamond means that Apollo would have $5.2B invested. If their total funds raised as of 2017 was $24 B and that is close to what they have today, then that means they would have approx 21% of their portfolio tied up in one investment.

    Anyone who invests in the stock market knows that is a lot of risk.

    Apollo would have to sell or IPO the combined entity for at least $6-$7B to make this acquisition worth their risk and time. I think this is a lot of exposure to one company/industry for one PE firm and with a recession on the horizon, the coming defaults from owners, and vocal disatissfied Diamond customers who have been milked to the max. I cannot see how Apollo could get financial backers for such a risky plan - especially when there are no building assets to leverage as collateral.

    Therefore I am surmising that Apollo is bluffing and they don't have the backing, or don't want to spend the incremental investment by themselves because the exposure is too high. So they are seeking creative ways to bring Blackstone/HGV/Hilton to the table to help them creatively get out of Diamond.

    My understanding of PE funds is that they are not in it for the long haul so although they have juiced up short-term income to unsustainable levels, they need to position Diamond to be sold to a buyer that foresees future income. From what I am reading from Diamond owners, this is a company that will implode at some point unless they change the way they operate to be more competitive to attract new buyers and keep the old ones.

    You can see the beginnings of this implosion at Diamond because new buyer sales have dipped well below the industry average.

    I hope Apollo/Diamond is bluffing and their deal falls apart. That would be the best scenario for HGV owners because HGV would continue to operate as it does today as a public company.
     
    Last edited: Aug 30, 2019
  15. jd5504

    jd5504 TUG Member

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    This information should kill HGVC sales for a while.
    While I bought from HGVC I would cut my losses and dump what I have.
     
  16. jd5504

    jd5504 TUG Member

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    Just to clear up my post.
    Any decision to lessen the quality or benefits of current HGVC ownership would result in selling off ownership.
     
  17. Panina

    Panina TUG Review Crew: Elite TUG Member

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    Most buyers do not educate themselves when they buy a timeshare so I doubt this will hurt developer sales right now.

    Current owners that follow what goes on such as tuggers might decide to not take a chance and dump what they have. Buyers on the resale market that are knowledgeable might wait and see. This scenario can make resale prices go down.

    After much thinking, my worse scenario is I might not be able to sell for what I paid but probably will be able to unload my guaranteed July 4th oceanfront 2 br in Myrtle Beach as it will be wanted by someone to actually use.

    My problem is I deposited my week already for 2020. Where I can give a new owner 8400 points my actual week is not available to use until 2021 thus my dilemma.

    I just don’t see Hilton wanting to sell to someone and not have their name continue. Timeshare owners also use hotels and they can lose lots of business from those who are now pissed.

    However it falls, I always knew it could change so it is what it is.
     
  18. jd5504

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  19. Arimaas

    Arimaas TUG Member

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    So I read through a lot of these posts, and it leaves me with questions that maybe some of you can answer. I do realize most of us seem to be jumping the gun here, but my questions are, why would someone get rid of their HGVC property if this acquisition happens? Are we worried that the club will be devalued? We won't be able to book across all the properties? Our MFs will go up astronomically?

    I own a 5000 2br Gold on the Blvd, which I bought just to use the points, against the wisdom of some that say "buy where you want to use". Are we worried that all I'm going to be able to do now is stay on the Blvd during Gold week, and I won't be able to use the points for the other properties (I've never ever stayed in Vegas on the 4+ HGVC reservations I've made since owning Hilton). I would be willing to bet that 99% of retail owners do not own where they want to go. Before I bought (resale) I sat through a presentation in Orlando, and the sales guy was trying to sell me whatever was in the inventory (I think was South Carolina). So I can't see them doing any major changes without pissing off 99% of retail buyers and probably a very large percentage of owners of the system who just bought whatever was available. But, maybe they don't care? I don't know.

    Anyway, I just wanted to put the questions out there to the folks that are worried and are talking about dumping their units -- why? What should I be worried about?
     
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  20. Panina

    Panina TUG Review Crew: Elite TUG Member

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    I am concerned about who would manage the properties as hgvc manages them great and keep maintenance fees in check. I am also concerned if the rules and fees for trading change and if systems are combined that do not have the superior level of finishes the units hgvc do, the additional members from the other system demand will diminish what I can get.
     
    Last edited: Aug 30, 2019
  21. Arimaas

    Arimaas TUG Member

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    Thanks. Is it worth it to wait and see what happens, or just going to cut loses? Like I said, I bought to trade. I didn't pay much, got on the resale market and have for sure gotten value out of the system (haven't recouped my initial "investment" - but I didn't buy a TS as an investment). I just don't want it to become useless to me, and then I'm stuck with some property I can't use and stuck paying MFs on.
     
  22. nuwermj

    nuwermj TUG Member

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    Hi. The enterprise value ($4.4b) and the market capitalization ($2.8) were taken from the Seeking Alpha web site
    https://seekingalpha.com/symbol/HGV/peers/comparison

    Market cap is number of shares times price per share. Enterprise value is Market Cap plus debt minus cash.

    Apollo's private equity unit has more than $24B. Their 10K report says: "As of December 31, 2018 , we had total AUM [assets under management] of $280 billion, including approximately $193 billion in credit, $69 billion in private equity and $18 billion in real assets."
     
  23. nuwermj

    nuwermj TUG Member

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    Here is the Seeking Alpha page comparing HGV and VAC (aka MVC). I'm not sure why they compare with Hotel companies.

    Untitled2.png
     
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  24. dayooper

    dayooper TUG Member

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    One of things that crossed my mind was that By “leaking” that they were looking to buy,
    Eh, it’s all up to you. No matter what happens, you will still be able to trade in some exchange company.
     
  25. youppi

    youppi TUG Member

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    If HGVC never sold points (only weeks with a number of points attached to them) and if they can change the number of points assigned to each resorts/units/seasons/weeks then a buyer could change it and skim owners like MVC do with enrolled weeks. Right ?
    Example, at this moment a 2 bdrm platinum season in some resorts in Orlando and Hawaii is 7,000 pts but they could decide that Orlando worth less than Hawaii (it's true) and reduce Orlando to 5,000 pts to book it and also skim all owners (Orlando and Hawaii) by given them 1,000 pts less than the number of points needed to book the same unit in the Club but owners are allowed to book any weeks at their resort in their season (no points involve).
    Is it a possible scenario ?
     

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