As widely anticipated, the La Quinta IPO is getting close to hitting the markets. Yesterday, the company filed an S-1 with the Securities and Exchange Commission and the lead underwriters on the deal include J.P. Morgan (JPM) and Morgan Stanley (MS). But the company did not provide any details on the exchange it will list on or the pricing terms.
La Quinta is one of the largest operators of limited-service hotels in the United States, featuring more than 84,000 rooms. The business model is based on a franchise system, which has made it easier for the company to grow because of the low capital costs. While the firm is focused on a low-cost strategy, it still provides key amenities like flat-screen HDTVs, high-speed Internet, free breakfast and swimming pools.
Investors in the La Quinta IPO will likely be attracted to the high margins. During the first nine months of 2013, the company posted $256.2 million in EBITDA on revenues of $673.4 million.
And yes, the path of the La Quinta IPO has definitely been interesting. Blackstone (BX), the private equity powerhouse, shelled out $2.28 billion for the company back in late 2005. But the timing turned out to be awful, as the hotel industry got crushed during the financial crisis. But Blackstone reacted swiftly and pulled off a tough restructuring.
Now it looks like Blackstone will get a nice payoff from a La Quinta IPO. BX has already had success with other recent hotel deals. For example, Hilton Worldwide (HLT) is up 7% since its offering and Extended Stay America (STAY) has gained about 28%.
At the same time, the general hotel sector has been fairly strong, which should be another nice driver for the La Quinta IPO. For the most part, travel spending has increased as the economy has rebounded and pricing has been robust. It also helps that there has been meager growth of supply of new hotel rooms in the U.S.
Despite all this, there are still some issues with the La Quinta IPO. Because of the buyout, the company has a hefty debt load, which is at about $2.8 billion. There is also a pending IRS investigation. The agency is auditing the financials for the years of 2010 to 2011. It is far from clear what the potential liabilities could be.
But such things will probably not derail the La Quinta IPO. Again, the company is highly profitable and has benefited from a wide-ranging restructuring. So like other Blackstone-backed hotel deals, the La Quinta IPO should also get a positive reception on Wall Street.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.