Hilton Grand Vacations to acquire Diamond Resorts in $1.4B transaction

Hilton Grand Vacations Inc. (HGV) has entered into a definitive agreement to acquire Diamond Resorts International Inc. from funds managed by affiliates of Apollo Global Management Inc., funds managed by affiliates of Reverence Capital Partners and other Diamond stockholders, in a stock-based transaction with an equity value of approximately $1.4 billion. Under the terms of the agreement, the Apollo funds and other Diamond stockholders will receive 34.5 million shares of HGV common stock, subject to customary adjustments.

The acquisition will combine the strength of HGV’s brand and culture with Diamond, an independent timeshare operator. Diamond’s 92 leisure resorts and nearly 400,000 owners complement HGV’s 62 upscale and luxury properties and more than 325,000 owners, and the combination will create the premier vacation ownership company with the broadest offering in the industry, the company reports.

“I’m excited to announce our transformational agreement to add Diamond Resorts to the Hilton Grand Vacations family, accelerating our next phase of growth,” said Mark Wang, president/CEO of Hilton Grand Vacations. “This strategic combination will leverage the strengths of each company, positioning us to drive significant net owner growth while enhancing efficiencies of scale and generating significant shareholder value. Diamond’s extensive regional, drive-to network of resorts and expanded demographics uniquely complement HGV’s best-in-class lead generation, world-class hospitality and premier destinations backed by the strength of the Hilton brand. For our valued team members, owners and guests, this combination creates new opportunities to provide exciting destinations and memorable vacation experiences while continuing to provide exceptional levels of service.”

Mike Flaskey, CEO of Diamond Resorts, added, “Through this agreement, HGV and Diamond will create a new global standard of vacation ownership hospitality. Together, we will expand Diamond’s unique events and concert platform and deliver the broadest range of world-class experiences available in the industry, providing our members and owners with additional flexibility, unforgettable vacations and experiences of a lifetime. We are thrilled to join the HGV family and look forward to achieving new heights of excellence.”

Highlights of the transaction are:

  • Expands and diversifies HGV’s resort portfolio into more than 20 new markets
  • The combined company will have 720,000 owners, 154 resorts and 48 sales centers
  • Adds additional drive-to destinations and allows HGV to leverage the Hilton network to widen customer reach
  • Doubles the number of vacation options for the combined owner base
  • Broader range of pricing and product options will widen customer reach, enhancing alignment with the 112 million Hilton Honors members
  • Generates more than $125 million in run-rate cost synergies, expected to be achieved in the first 24 months following close
  • Increases recurring EBITDA streams and drives overall cash flow, with adjusted free cash flow per share accretion in year one
    • The combined company is expected to generate steady state adjusted free cash flow conversion of 50-60%, driven by its realization of cost synergies, significant inventory pipeline, acquired inventory and reduced long-term inventory spending
    • Adding new owners embeds additional value for the company over the life of their ownership
    • The combined company is anticipated to generate approximately 50% of segment-adjusted EBITDA from recurring sources, including club membership fees, property management fees and financing fees

Under the terms of the agreement, the Apollo Funds and the other Diamond stockholders, including the Reverence Funds, are expected to receive 34.5 million shares of HGV common stock, valued at approximately $1.4 billion, subject to customary adjustments. Upon transaction close, existing HGV shareholders will own approximately 72% of the combined company and the Apollo Funds will own approximately 28% of the combined company.

The transaction, which was unanimously approved by the board of directors for both companies, is expected to close this summer, subject to customary closing conditions and regulatory approvals. The issuance of HGV common stock in the transaction is subject to shareholder approval.

HGV’s management team, including President/CEO Wang, CFO Dan Mathewes and COO Gordon Gurnik, will continue to serve in their current roles upon transaction close. HGV’s board of directors will be expanded from seven to nine members, and the Apollo Funds will have the right to appoint two directors as long as their equity ownership remains at or above 15% of the outstanding stock at closing and one director as long as their equity ownership remains at or above 10% of the outstanding stock at closing.

BofA Securities is acting as exclusive financial advisor for HGV, and Alston & Bird LLP, Simpson Thacher & Bartlett LLP and Foley & Lardner LLP, with a team led by partner Bill Guthrie, which also included partners Dan Bachrach and Matt Jassak, are acting as legal counsel. Credit Suisse is acting as lead financial advisor and Goldman Sachs is also acting as financial advisor for Diamond, with Paul, Weiss, Rifkind, Wharton & Garrison LLP acting as legal counsel.

HGV has received financing commitments from BofA Securities, Deutsche Bank and Barclays with PJT Partners acting as capital markets advisor to HGV.

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