NEW YORK – Blackstone Group LP, one of the world's biggest private equity firms, on Thursday said it seeks to raise up to $4 billion in a highly anticipated initial public offering.
The New York-based firm, known for multibillion dollar takeovers such as February's buyout of Equity Office Properties, announced its intentions to go public in a filing with the
Securities and Exchange Commission. The firm plans to list on the
New York Stock Exchange.
Blackstone — founded in 1985 by former Lehman Brothers Holdings Inc. bankers Stephen Schwarzman and Peter Peterson — said the initial public offering will allow it to tap new sources of capital for buyouts. In addition, it helps extend Blackstone's brand name and gives management a way to profit from the increased value of their stakes.
The deal ends more than a week of speculation that Schwarzman planned to turn the firm — known globally for bringing major companies private — into a public entity. The regulatory filing also sheds new light on the tightly-held buyout shop.
"They've operated in their own stealth realm for so long that this really does take advantage of the flipside of the coin — they have an opportunity to benefit by being a public company," said Denise Valentine, senior analyst at business consultancy Celent LLC's securities and investment group. "This is going to be a big IPO, oversubscribed, and it will give Blackstone a bigger kingdom."
First off, Schwarzman and other top management don't plan to cede control of the company — or the collection of companies it has acquired. He plans to structure the company to leave control in the hands of its partners.
Blackstone Group is managed by general partner Blackstone Group Management LLC, which is owned by the company's senior managing directors. Holders of the company's common stock will have only limited voting rights and will have no right to elect the general partner or its directors, according to the prospectus.
The firm had $78.7 billion in assets under management as of March 1, according to the filing. Net income for 2006 nearly doubled to $2.27 billion from $1.33 billion a year earlier. Its 2006 net gain from investment activities was $7.6 billion, up nearly 50 percent from 2005's $5.14 billion.
It also said it has had a 22.8 percent annualized return in its corporate private equity business, while its real estate holdings has a 29.2 percent return. These represent Blackstone's two biggest businesses.
"We intend to continue to follow the management approach that has served us well as a private firm of focusing on making the right decisions about purchasing and selling the right assets at the right time and at the right price," the company said in the prospectus, which did not reveal the possible timing of an IPO or how many shares would be issued.
The filing has raised speculation that this might be the future for private equity firms, many confronted with a contraction in global stock markets that could stymie funding. Already, rival Fortress Investment Group LLC raised $643.3 million when it became the first private equity or hedge fund to go public.
Private equity funds, which used to be known in the industry as leveraged buyout firms, use cash raised from investors and from its own coffers to buy companies. The past few years has seen many of these firms band together to take over companies on a scale never imagined before, including Harrah's Entertainment Inc., energy company TXU Group Inc., and lawn care company ServiceMaster Co.
The next step for private equity firms is to profit by taking these companies public again within five years after the initial deal.
Blackstone has a varied portfolio of companies that includes Madame Tussaud's waxwork museums in New York and London. It took German chemical company Celanese Corp. private, and then relisted it on the New York Stock Exchange in 2005.
The most recent coup for the firm was February's $23 billion acquisition of Equity Office Properties, which is the largest office landlord in the U.S. The purchase was the largest private equity deal on record.
Beyond taking companies private and managing a real estate portfolio, Blackstone also profits from advisory services, making it into a more diversified financial services company like Goldman Sachs Group Inc.
Blackstone also said in the filing that there will be no severance arrangement, or golden parachute, given to Schwarzman as part of the plan to take the company public. He will receive no compensation other than a $350,000 per year salary — though his personal fortune is tallied in the billions of dollars.
Schwarzman, 60, was listed as Forbe's magazine's 249th richest person with about $3.5 billion of assets. He shares that rank with about 14 others on the annual billionaire's list.
He could not be reached for comment.
Morgan Stanley Inc., Citigroup Inc., Merrill Lynch & Co., Credit Suisse Group, Lehman Brothers and Deutsche Bank Securities are listed as underwriters for the offering.