Updated from March 16
Private equity is going public -- and with a vengeance.
Just a month after the pathbreaking
initial public offering, Friday's chatter had Steve Schwarzman's Blackstone Group testing the IPO waters. On Saturday,
The Wall Street Journal
, citing people familiar with the matter, reported Blackstone is in the advanced stages of planning an IPO for about 10% of its management company.
A spokeswoman at Blackstone declined to comment Friday, but the timing is certainly striking. Just two weeks ago at the Super Return private equity conference in Frankfurt, Schwarzman decried the notion of an IPO.
"To divert yourself like that and then take on that cost, is really not worth it," he said during a panel discussion. "I think the public markets are overrated."
Overrated or not, the public markets can offer firms such as Blackstone -- as well as rivals such as Kohlberg Kravis Roberts and Apollo -- a way to cash in some of the big gains they've made in recent years. The market and economy are healthy right now, though worries persist about a possible recession and possible ripple effects from the subprime lending meltdown.
"It's not really an IPO as much as it's an exit strategy," says David Menlow, founder and CEO of Millburn N.J.-based IPO Financial Network, which tracks IPOs. "This is a way to say we'll get a higher valuation than if we were private."
Steve Kaplan, a University of Chicago professor of finance and entrepreneurship, believes that a deal by a private equity firm might suggest that the markets are at their peak.
"If I am an investor in private equity, I'd prefer to see these guys private," he says, "but the public markets are paying a high price."
That could mean some eye-popping numbers. No documents have yet been filed, but
Friday morning pegged Blackstone's potential value at more than $20 billion. A deal priced accordingly would value Schwarzman's stake alone at about $8 billion. The
reported Saturday that the planned deal would conservatively value all of Blackstone at $40 billion.
Those kinds of dollars naturally must be turning heads elsewhere in private equity land. A move by Blackstone could spur similar moves by private equity shops such as KKR and Texas Pacific Group, which are attempting a $45 billion buyout of
Meanwhile, the private equity players could be viewing now as a good time to sell, given some of the currents in the market and in Washington.
Private equity has been much maligned by some critics as destructive to job growth. Congress is weighing a tax bill that could eat into returns.
"There's the mentality that these companies don't need to become public," says Menlow, "but if they don't, they might lose some of their panache in the marketplace."
A public offering might also generate some goodwill in the public eye. For one thing, a Blackstone IPO could finally throw off the veil of secrecy that has shrouded the business.
"The one thing that's bothered me about hedge funds and private equity is there's no transparency," says Muriel Siebert, chairwoman of her eponymous discount brokerage firm and a 40-year Wall Street veteran. "I want to know all the details. How much equity are they putting into a deal and how much leverage and under what terms?"
And it's impossible to ignore that investors are hot for these kinds of companies right now. Fortress shares doubled in their first day of trading on the NYSE, and talk of a Citadel IPO has been swirling around Wall Street as well.
"I think Fortress got everybody thinking," says Siebert.
Adds Menlow, "Appetite for
Blackstone is going to be off the scale."