Blackstone Files IPO

The private equity firm will raise $4 billion amid frenzied dealmaking.
Publish date:

Updated from 4:06 p.m. EDT

Just days after news reports of its imminent debut roiled Wall Street, private equity titan


filed Thursday for an initial public offering that would raise $4 billion.

The news comes amid frenzied dealmaking led by private equity firms such as Blackstone, Kohlberg Kravis Roberts and Apollo. Blackstone this year led a $39 billion buyout of office tower titan Equity Office Properties, while KKR is leading a $32 billion buyout of energy giant




Given the outsize returns these firms have generated and the vast amounts of money chasing deals, observers say it only makes sense that some private equity names want to cash in on their strong position. In its filing,


reports 2006 adjusted cash flow from operations -- a measure of liquidity and amounts available to be distributed to shareholders -- of $1.68 billion.

Still, the filing marks a departure from the privacy that has shrouded many players in the industry.

"Seems like some of the larger funds are expecting the market to turn at some point and the big thing for them is access to capital and locking that in," says Charles Davidson, a senior analyst at Standard & Poor's who focuses on alternative investments such as hedge funds and private equity.

"One of the questions to unearth is where is the value being created for investors?" says Andrea Cohen, attorney at law Nixon Peabody in San Francisco, whose purview includes private equity firms and hedge funds. The attorney had not fully perused the 360-page preliminary prospectus.

"While we believe that becoming a publicly traded company will provide us with many benefits," Blackstone said in a

Securities and Exchange Commission

filing, "it is our intention to preserve the elements of our culture that have contributed to our success as a privately-owned firm."

The filing shows Blackstone has $78.7 billion in assets under management through three primary businesses -- private equity, real estate and alternative asset management.



is being handled by nearly every major investment bank and white-shoe firm, including

Morgan Stanley

(MS) - Get Report


Merrill Lynch



Credit Suisse

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Lehman Brothers



Deutsche Bank

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, according to the filing.

But most striking is the absence of

Goldman Sachs

(GS) - Get Report

on what will be a bellwether private equity offering. A call to Goldman was directed to a spokesman who declined to comment. Robert Friedman, Blackstone's chief administrative officer and chief legal officer in New York, declined to comment.

The notion of an investment bank such as Goldman passing up lucrative fees in a deal suggested either a Blackstone/Goldman rift or that Goldman has recused itself because it has formed ties with another competing private equity shop with similar IPO designs, observers say.

Cohen also found Goldman's omission odd, saying, "I couldn't really speak to the politics of that but it's baffling, isn't it?"

Blackstone's filing says the firm plans to increase its assets through raising new investment funds, increasing the investment of its own capital, expanding its advisory business and entering into complementary new businesses.

The offering will allow Blackstone to "access new sources of permanent capital," provide it "with a publicly-traded equity currency" and to enhance its "flexibility" in pursuing strategic acquisitions, the filing says. It will also be able to expand its range of financial and retention incentives for workers.

The New York firm said it intends to maintain a "long term focus" on its revenue, net income and cash flow, "even though this approach, together with the fact that our financial results will be significantly affected by the timing of new investments and realizations of gains, may result in significant and unpredictable variances in these items from quarter to quarter."

The news comes just a month after the first U.S. hedge fund to test the public markets,


, surged in its first day of

New York Stock Exchange

trading. Some other so-called alternative investment vehicles including private equity firms have also been sniffing around the public debt markets.

Blackstone said it would give hundreds of junior-level managing directors equity grants after an IPO and establish a $150 million charitable foundation. The company said its management structure will continue to reflect "strong central leadership and active involvement by our senior management."

Blackstone said it won't have golden parachutes and CEO Steve Schwarzman "will receive no compensation other than a $350,000 salary" following the deal.

As of March 1, Blackstone had invested in 42 corporate partnerships including


(T) - Get Report


General Electric

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, Sony,

Time Warner


and Vivendi.