The 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.