Why Blackstone is going public?

Because it's going to make Schwarzmann and Peterson into billionaires several times over.

It will also turn the Group into something more along a global player, with opportunities to expand in scope.

Why did Goldman go public?

A big PE firm going public (even though it is only one business of blackstone) should raise some red flags. Fortress went public fairly recently too; not too sure if i'm forgetting any other big financce/investment firms.

Honestly, I don't see how this LBO craze can sustain itself. There's no way firms can enjoy such cheap debt for too much longer, and this whole entire inverted yield curve business seems kind of spooky to me. The way I interpret it, they're cashing out now, where it seems to be the top of the wave. Now's the time to take some profits.

Alpine makes a lot of good points. There's been many signals that LBOs are becoming harder to pull off, and with less return. the WSJ had a good article on it last...Wednesday I think? It's definitely worth reading, and should apppear when you search.

There will always be a market for LBOs (kind of). But upon late, it's getting harder, and I feel like it's the period where the smaller firms will get pushed out, and the larger ones growing. Definitely not a meltdown, but something like the climax of the private equity novel.

Keep in mind - I'm not a banker, just an aspiring one, and these are observations/inferences i've made from my knowledge as an undergrad junior.

The move was largely intended as a means to create liquidity for senior management at Blackstone. The intent behind this liquidity event was part of a larger secession plan, whereby younger blood would eventually take the reigns at the firm.

Had KKR made this move 18 months back, they likely wouldn't have lost a number of their most talented junior partners, who eventually left the firm after becoming fed up with the unwillingness of its most senior partners to cede any real control of the business.

lol, thanks for clearing that up. Perhaps I read too much into the financial markets. Sucks for the guys who just left Blackstone because they got tired of waiting, haha.

I could probably look this up, but who is expected to pick up a majority of the IPO? Isn't China taking a big stake?

How are the young partners taking over control by doing an IPO? Are they buying a majority of the issuance? I thought the new shares were non-voting anyway?

Edit: repeat

Not to get into too much detail, but those are not the actual figures. See below for more detailed estimates:

China: $3.0 BN, regardless of the IPO share price (although not to exceed 10%)

IPO: $3.9-$4.1 BN, depending on the actual IPO share price; although it could be as high as ~$4.75 BN should the underwriters excercise their option to float an additional 20 MM shares

Sounds to me that transfer of control is just an excuse, given the small size of the IPO. I would bet that the partners want to take some chips off the table while the market is peaking. If the young guys wanted to take over, they could easily do an MBO (similar to what Montagu, a UK based PEG, did in 2004).

I guess we'll find out. I would love to see how they are valuing this deal. Trying to estimate the gains and resulting carry from the portfolio would be difficult.

Did you guys see that article re: senate likely passing legislation to force Blackstone to be considered a corporation instead of a partnership IF they go public (would increase tax from 15% to 35%)? Analysts are now saying this could cause Blackstone to re-think their IPO. Should be interesting to see what happens here.

Two reasons: 1) PE firms know debt isn't going to stay this cheap forever and need to raise capital to so they can put more cash into their acquisitions.

2) PE firms will soon find themselves income taxes rather than capital gain taxes raising their tax right by 25%

Debt is about to get not-cheap in a hurry - anyone here following yields? CLOs may need to unwind some obligations and will pump in more cash (yes, it was in the Journal today) but its an overheated space and it'll pop, just like every bubble.

I'm not sure why anyone's worried about Schwarztman's (sp?) control of the firm; they're only floating a tiny amount of it. Valued at about 40bn, and Steve alone gets 7.5bn in stock on top of his 650+mm payout. The lower ranks make out with barely any stake. Speaking of, what kind of balls does that take? He takes a thousand fortune's worth of equity in the deal, and announces along with the rest of the deal that profits are going to suck huge for the next couple years.

Straight from the prospectus (notice what point is last):

"We have decided to become a public company: • to access new sources of capital that we can use to invest in our existing businesses, to expand into complementary new businesses and to further strengthen our development as an enduring institution; • to enhance our firm's valuable brand; • to provide us with a publicly-traded equity currency and to enhance our flexibility in pursuing future strategic acquisitions; • to expand the range of financial and retention incentives that we can provide to our existing and future employees through the issuance of equity-related securities representing an interest in the value and performance of our firm as a whole; and • to permit the realization over time of the value of our equity held by our existing owners."

anyone else find it ironic that private equity needs to go public?

yeah dude...I was thinking the same...that would make it PUBLIC equity, wouldn't it? LOL.

From today's Seeking Alpha - Wall Street Breakfast. My sentiment exactly.

"Despite a strong IPO ($31/share, at the high end of its range) and warm market reception (it closed Friday at $35.06), Blackstone (BX) may well disappoint. An unstoppable stock market has made persuasive buyout targets scarce, forcing firms like Blackstone to pay higher ratios and take on greater debt -- just as interest rates are mounting a charge. At $35, shares trade at 32x 2006 earnings (or 20x rumored 2008e profits of $1.75), 5x book value, and 43% of assets under management. The biggest I-banks (such as Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS)) trade at an average of only 10x 2008e earnings, while asset managers like T. Rowe Price (TROW) and Franklin Resources (BEN) fetch about 18x 2008e. Blackstone's high fees, which account for most of its earnings, may be unsustainably high. And a little-noted "clawback" condition could force the fund to refund 20% incentive fees if future investments sour. Its favorable perception of its real estate portfolio seems unrealistically rosy: it still owns half of $39 billion Equity Office Properties, while REIT stocks have fallen 20% since its February purchase. Barron's says the IPO may signal a top for private equity; shares might only be worth mid-20s."

it's simple, the owners want to monetize their investment.