Blackstone Group files for $4 billion IPO
NEW YORK/WASHINGTON (Reuters) - Blackstone Group LP, an investment firm known for taking huge companies into private ownership, filed on Thursday to bring part of itself public in an offering worth up to $4 billion.
Raising funds through a public offering allows Blackstone quick and steady access to money they would otherwise have to take the time to raise privately. The firm said the public equity also allows flexibility in pursuing future deals and permits a range of financial and retention incentives for its employees.
The move also comes at a time when some private equity investors believe the favorable deal environment is nearing its peak, with several firms mulling ways to diversify their strategies.
The IPO filing gives public access to what had previously been undisclosed numbers, including the $2.27 billion of net income Blackstone earned last year, the doubling of revenue to $1.12 billion and net gains from investment activities of $7.6 billion.
"It's a really significant development. I think this will get a big reception," said James Cox, a Duke University law school professor. "Certainly, other fund managers will be looking at what happens here and wondering if this is a way to increase their capital so they can play on an even bigger stage."
A $4 billion public float, which sources say is about 10 percent to 15 percent of the company, would rank Blackstone's offering among the top 10 largest IPOs ever raised by a U.S. company, according to Dealogic.
That's a far cry from the $400,000 its founders Peter Peterson and Stephen Schwarzman started with in 1985. Peterson had been CEO of Lehman Brothers, and Schwarzman head of Lehman's M&A group.
News of the offering from Blackstone, whose recent deals include the $23 billion purchase of Equity Office Properties Trust and the $17.6 billion buyout of Freescale Semiconductor, surfaced late last week.
Blackstone started out as a small investment bank boutique and has grown into a global financial conglomerate. The firm, with more than 700 employees, invests in private equity, real estate, fund of hedge funds, and debt to name a few. It also has a corporate advisory group.
Blackstone is among the few U.S. private investment funds to ever take itself public, and follows the IPO of Fortress Investment Group LLC (FIG.N) last month, which raised $600 million.
Blackstone is selling units as a master limited partnership, which functions differently from most publicly traded companies. Blackstone did not reveal how many units it plans to sell, or their estimated price, as those details are expected in future filings. It plans to list on the NYSE (NYX.N), but did not propose a stock symbol.
Shareholders will have limited voting rights, with Blackstone's senior management in control of the voting power.
"This is totally different from, say, Google IPO-ing and selling large portions of its stock to the public. This is a very limited foray into the public market and I don't see it getting much traction beyond that. They are not going to give up control. They like the privacy," said Anthony Sabino, attorney for Sabino & Sabino, a professor of law and business at St. John's University.
Blackstone is best known for its private equity investing, in which it buys companies by borrowing most of the money, restructures the businesses and sells them later.
The private equity industry is booming, thanks in part to a frothy debt market. The sector did more than $600 billion in deals last year, more than double the year before.
FINANCIALS
The fund has $78.7 billion in assets under management as of March 1, the filing says. Blackstone's private equity funds had annual returns of 22.8 percent since inception, net of fees, and its real estate funds, 29.2 percent.
Net of fees, Blackstone's hedge fund group has returned 11.9 percent since inception in 1990.
Fund management fees were $852 million last year, while advisory fees were $257 million.
The filing also offers a glimpse into perks at the firm.
"The returns are close to mind-boggling," said Jay Ritter, a professor of finance at the University of Florida. "But as they get bigger, and more money goes into private equity, it's unrealistic to think that investors will get returns this high in the future."
The New York-based firm said Morgan Stanley and Citigroup were the lead underwriters for the IPO. Absent from the list are Goldman Sachs and J.P. Morgan.
The filing lists insurer American International Group Inc. (AIG.N) as among its owners.
Peterson, 80, plans to step down as senior chairman and director no later than December 31, 2008. Schwarzman, 60, said when he steps down as chief executive officer he intends to put President Hamilton James, 56, in charge.
(Additional reporting by Yung Kim and Jonathan Keehner)
