Private equity giant Carlyle files for IPO

NEW YORK/BANGALORE Tue Sep 6, 2011 6:24pm EDT

Carlyle Group co-founder and Managing Director David Rubenstein speaks at the panel discussion ''Global Opportunities in Private Equity'' at The Milken Institute Global Conference in Beverly Hills, California May 2, 2011. REUTERS/Fred Prouser

Carlyle Group co-founder and Managing Director David Rubenstein speaks at the panel discussion ''Global Opportunities in Private Equity'' at The Milken Institute Global Conference in Beverly Hills, California May 2, 2011.

Credit: Reuters/Fred Prouser

Related Topics

NEW YORK/BANGALORE (Reuters) - Private equity company Carlyle Group filed for an IPO on Tuesday, a long-awaited move to catch up with rivals Blackstone, KKR and Apollo, but the volatility of global markets means an offering is unlikely until the first half of 2012.

The IPO will put Carlyle, famous for its Washington connections, under even more public scrutiny as it fulfills a long-time desire to become a publicly traded global brand.

Still, it could be a difficult road ahead: The U.S. IPO market has struggled as concerns about Europe's debt crisis and a weak recovery in the United States have made markets volatile. A number of deals were withdrawn last month.

"There is going to be pricing pressure for this deal, given the weak demand for financial IPOs and the performance of the listed companies," said Josef Schuster, founder of Chicago-based IPO research and investment house IPOX Schuster.

The market conditions and the poor performance of other listed private equity companies like Blackstone Group and Apollo Global Management, and the complex listing of Kohlberg Kravis Roberts & Co, may also damp investor appetite.

Shares of Blackstone, currently valued at $14.6 billion, have dropped by a third since a near three-year high in late April.

Carlyle's filing, with the U.S. Securities and Exchange Commission, lists an offering size of $100 million, but that may be a placeholder amount. Sources said in June the offering could be as large as $1 billion.

Carlyle is expected to move ahead with an IPO in the first half of next year, depending on market conditions and regulatory approval, two sources familiar with the situation said on Tuesday.

A flotation early next year would avoid the holiday doldrums and give the market more time to recover, said Steven Kaplan, a finance professor at the University of Chicago who specializes in private equity.

"This is probably a mildly bullish signal about next year," Kaplan said. "They wouldn't be doing this if they thought we were in the fall of 2008."

Still, the timing of the filing raises questions. Investors in the last six weeks have shied away from the U.S. junk bond market and flocked to U.S. Treasuries and other low-yielding assets that are considered safer, Bank of America Merrill Lynch data show.

Junk bonds are often used to finance buyout deals. Firms like Carlyle could be in a challenging position if both the IPO market, which provides an exit, and the junk bond market, which provides financing for new deals, are struggling.

Carlyle, whose investments include Dunkin Brands, Alliance Boots and Freescale Semiconductor, was valued at $20 billion in September 2007, before the credit crisis sent stock markets tumbling.

The buyout firm said it generated economic net income -- a measure of profitability used by private equity firms -- of more than $1 billion last year and about $770 million in the first half of this year.

Blackstone's second-quarter economic net income was $703 million.

POLITICAL HISTORY

Carlyle is famed -- and sometimes criticized -- for its political connections and a history of having Washington heavyweights on its payroll. The list of politicians who have worked in some capacity for Carlyle includes former U.S. President George H.W. Bush and former British Prime Minister John Major.

"We were seen by many as a shadow government ... a Trilateral Commission, and that we were out to rule the world," co-founder David Rubenstein said at a conference in 2004.

Rubenstein, one of three men who founded Carlyle in 1987, has become the firm's public face. The 62-year-old executive is a staple at industry conferences, where he is known for kicking off self-deprecating speeches by polling audience members on their views on the economy, taxes and the buyout industry.

Rubenstein, who trained as a lawyer and worked in the White House during the Jimmy Carter administration, co-founded Carlyle with William Conway and Daniel D'Aniello, who remain atop the firm.

Rubenstein has a net worth of $2.6 billion according to Forbes magazine in March 2011.

Blackstone's IPO in 2007 saw its founders, Stephen Schwarzman and Peter Peterson, become multibillionaires.

Carlyle is controlled by its senior managers and investors that own minority interests in the business: Mubadala Development Co, an Abu Dhabi-based strategic development and investment company, and California Public Employees' Retirement System (Calpers).

Private equity companies and hedge funds typically give little, if any, decision-making power to shareholders.

"Investors have to be very comfortable with the fact that they are just a speck of sand on the beach when it comes to having any say in what's going on with the company," said David Menlow, president of IPOfinancial.com.

Carlyle manages about $153 billion in assets, compared with Blackstone's $159 billion.

Carlyle said in the SEC filing that JPMorgan, Citigroup and Credit Suisse are underwriting the IPO.

The filing did not reveal how many units the company plans to sell or their expected price.

(Additional reporting by Jochelle Mendonca in Bangalore, and Clare Baldwin and Jonathan Stempel in New York; Editing by Ian Geoghegan, Phil Berlowitz, Matthew Lewis, John Wallace and Steve Orlofsky)

FILED UNDER: