Buyout firm Blackstone files for brazen $4 billion IPO

March 23, 2007 | Matt Marshall | Comments | |

blackstone.bmpThe Blackstone Group, one of the most successful buyout firms, has filed for a $4 billion IPO (see filing).

VentureBeat is about money and innovation, and focuses on venture capital, and so doesn’t cover the buyout world much. The buyout industry is on fire, because public companies are seeking shelter from the demanding public market — lured by sexy, lucrative offers by these big buyout firms that have few public reporting requirements. Firms such as Blackstone take them private, so that they can restructure, and hopefully make a profit when they are publicly floated again, or acquired.

However, Blackstone’s move is quite brazen. It is generating huge management fees. It has increased its investments rapidly over the past year, and there’s no guarantee that the small group of professionals at Blackstone will be able to continue its past record of a 30 percent internal rate of return (which basically means a net profit of 30 percent a year, every year), especially now that everyone and their brother has entered the sector to compete with them. Records amount of cash has flowed into buyout funds over the past two years. And Blackstone will now be subject to public reporting requirements, presumably ending any advantage it had in arguing the benefits of its own — until now — private status when acquiring companies. Blackstone had made a business of counseling public company CEOs to go private, another irony.

To bail at its peak, and let the public stockholder take over, is a shrewd, gutsy move. Check out our coverage of the buyout world, where we cite Roger McNamee and others about why there are clouds on the horizon for this industry, and what it possibly means for start-ups.

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Matt Marshall is editor and CEO of VentureBeat. Follow him on Twitter at @mmarshall, and follow VentureBeat on Twitter at @venturebeat.

  • VictorH
    Not to be the doom-monger here, but this to me seems like the signal that the top is near for PE.

    Additionally, what worries me is that with boatloads of pension dollars invested in hedge funds, and with those same hedge funds able to tuck away underperforming assets into so called 'side pockets', once the other shoe which has yet to drop, 'drops' me thinks there is going to be a lot of pain ahead.

    Every decade or so has it's financial calamity, i.e. the S&L crisis. Although it may look like the subprime mortgage meltown might be the crisis of this decade, wait til the hedgefund industry starts to unravel.

    On top of that, private equity is buying up the public markets and then paying huge dividends to themselves to recapture their equity investment- and then some, which rears its head in the form of massive balance sheet debt, which will be passed along to future shareholders once they push the the private portfolio back onto the public markets.

    Seems to me that some of the sins will have no choice but to come back around to roost.
  • courtney benson
    I'm in complete agreement with Victorh just that I don't see it happening right now. All the suckers have not joined the party yet. This deal will only serve to encourage those that did not comprehend hedge funds to let those that do suck them in - that's when the party will end.
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