Blackstone Group LP raised US$4.13 billion in the biggest US initial public offering (IPO) in five years, a sign of the growing power of private equity firms.
The New York-based buyout shop, which controls names like Universal Studios Florida and real estate powerhouse Equity Office Properties Trust, listed on the New York Stock Exchange yesterday morning. The sale values each share at US$31 and the entire firm at around US$33 billion.
For Blackstone's founders -- who launched the private equity firm in 1985 with a US$400,000 investment -- the IPO will mean a big payout. Chief executive Stephen Schwarzman will walk away with a stake in the company worth about US$7.7 billion, putting him among the richest of the rich on Wall Street.
"Blackstone is like any dominant player in a maturing industry, they are successful because they have a great management team," said Peter Shabecoff, founding partner of Stamford, Connecticut-based private equity firm Atlantic Street Capital Management, on Thursday. "And now they have the scope and brand name to be successful, and that's what people are buying into."
The big appeal of the IPO was that it gave investors a chance to participate in the booming private equity industry, where firms buy companies, turn them around, and seek to sell them at a profit. And investor appetite was strong to buy a part of Blackstone, even though the stake in its management business has little voting power or any direct connection to its portfolio of companies.
Analysts had been monitoring the IPO's pricing throughout Thursday, which was said to be many times oversubscribed. There was some speculation that the interest from investors around the globe would cause Blackstone to raise the price beyond its original range of US$29 to US$31.
However, the underwriters on the deal might have been cautious about the IPO amid growing scrutiny on Capitol Hill. The deal was criticized for the huge payout it will provide top executives, leading to attempts by lawmakers to change the tax status of Blackstone and similar firms.
The firm acknowledged on Thursday that it could face much higher taxes as early as next year if it was taxed as a corporation, as a new bill in the US House of Representatives proposes to do.
The firm said in a regulatory filing on Thursday that taxing the firm as a financial company at a 35 percent rate would cause its earnings to falter. The buyout shop, like other partnerships, is taxed at a 15 percent rate.
That came on top of a previous warning from Blackstone that compensation and other costs related to going public would cause it to not be profitable for years.
But, analysts contend investing in the IPO has more to do with buying into Blackstone's cache -- especially as rivals like Kohlberg Kravis Roberts and Co are considering their own flotations.
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