Blackstone buys stake in Leonard Green & Partners

  • Blackstone taking less than 15 pct stake
  • First PE deal out of Blackstone Strategic Capital Holdings
  • Latest example of GP minority-stake-sale trend

Blackstone Group is buying a slice of private equity firm Leonard Green & Partners, a spokesperson for Blackstone confirmed.

The deal, first reported by Bloomberg, is out of Blackstone Strategic Capital Holdings, a fund dedicated to taking minority stakes in alternative-asset managers.

This is the first PE deal for the $3.3 billion fund, which was raised in 2014 and previously invested in four hedge-fund managers.

“We had looked at dozens of potential private equity deals in the past,” Blackstone Vice Chairman J. Tomilson Hill said in a statement, “and Leonard Green & Partners is the firm we wanted to partner with given their track record of investment excellence, the diversity of their business, and the quality and depth of the management team.”

Based in Los Angeles, Leonard Green invests primarily in retail and consumer, healthcare and wellness, business services and distribution companies. Blackstone’s ownership will amount to less than 15 percent of the firm.

GP minority-stake sales, which can give firms additional capital to expand their businesses, are an increasingly significant phenomenon.

It’s an easier way to get cash than fundraising, but not without complications. Sometimes used to provide liquidity for founders, these deals can alienate junior executives, who stand to see their carried interest in future funds diluted. And limited partners don’t like having to share management fees and carry with third-party investors.

Firms that have sold stakes include H.I.G. CapitalVista Equity Partners, Providence Equity,  Silver Lake, Riverstone Holdings and ArcLight Capital Partners. Among the buyout operations pursuing this investment strategy are Neuberger Berman Group‘s Dyal Capital Partners and Carlyle Group‘s AlpInvest Partners.

Action Item: Check out Leonard Green’s Form ADV here:

John Danhakl, managing partner, Leonard Green & Partners, takes part in the Private Equity: Rebalancing Risk session during the 2014 Milken Institute Global Conference in Beverly Hills, California, on April 29, 2014. Photo courtesy Reuters/Kevork Djansezian