How public will this private-equity firm be?

Marketplace Staff Mar 23, 2007

KAI RYSSDAL: And you know, it’s easy to be cynical when billionaire owners of a private equity fund go after more money. But sometimes, cynicism is exactly what’s called for.

Blackstone filed for a $4 billion IPO yesterday. It’s attracting a lot of attention for a couple of reasons. Blackstone’s the biggest private equity firm to offer stock in itself, so far. And its CEO is on the record as saying the public markets are over-rated. Pat Loeb has more now on what Blackstone as a public company might mean.

PAT LOEB: A few weeks ago, Fortune Magazine declared Blackstone’s CEO, Stephen Schwarzman

, “The Man of the Moment.” Schwarzman has made a ton of money buying public companies and taking them private. He extolled the virtues of private ownership, and he demonstrated them.

Blackstone had a track record of increasing these companies’ profits and selling them at a premium. In the past two years, they’ve averaged a 35 percent return on their investments, according to the prospectus it filed yesterday. The prospectus also showed the company had revenues last year of over a billion dollars and net gains of almost $8 billion.

With that much cash, why offer stock? Blackstone is in a “quiet” period now and can’t answer, but analysts say there are a couple of possible reasons.

John Morris of “The Deal” notes that Schwarzman’s partner, Pete Peterson, is 80 and would like to retire. Schwarzman himself is 60.

Morris says it’s not easy to cash out of a private company — the partners have to buy you out and you have to figure out what the business is worth. Going public solves those problems.

JOHN MORRIS: It’s a way of letting the market put a value on the business. And at the same time, allows existing partners to get out if they want to or sell some of their stakes.

A number of IPO analysts today warned investors to be cautious. They said Blackstone’s growth would be difficult to maintain. Also, stockholders will have no input into the business.

Unlike most public offerings, Blackstone is selling its shares as a master-limited partnership. That will allow it to continue operating much like a private company. A small group of partners will still make all the decisions.

Morris says the stock still may be a good deal. It will depend on how much the stock costs. That’s not yet known.

I’m Pat Loeb for Marketplace.

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