NEW YORK (AP) — Blackstone Group LP, dodging political scrutiny on the eve of its landmark initial public offering, on Thursday received overwhelming demand from investors seeking a piece of the biggest IPO in at least five years.
The nation's second-biggest buyout fund, which controls names like Universal Studios Florida and real estate powerhouse Equity Office Properties Trust, plans to raise as much as $4.14 billion when it lists Friday on the New York Stock Exchange.
Even as underwriters worked through the evening to nail down the final details of the offering, analysts tracking the deal said demand was strong. Investors in Asia, the Middle East, and Europe were said to be the most interested in buying into what is expected to be the sixth-largest IPO in U.S. history.
Investor appetite to own a piece of the private equity industry — where firms buy companies, turn them around, and seek to sell them at a profit — comes despite a flood of negative attention in the past few days. The IPO has been scrutinized for the huge payout it will provide top executives, and attempts by lawmakers to change the tax status of Blackstone and similar firms.
“Scrutiny was inevitable since this is the first time a big brand name private equity firm is going public, and disclosing how the industry really works,” said Peter Shabecoff, founding partner of Stamford, Conn.-based private equity firm Atlantic Street Capital Management. “But they have the scope and brand name to be successful, and that's what people are buying into.”
The IPO will surpass the initial offerings of Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. as one of the biggest in Wall Street's history. And, like Goldman's conversion to a public company, Blackstone executives are set up for a pretty hefty pay day.
Stephen Schwarzman, Blackstone's chief executive and co-founder, will walk away from the IPO with a 24 percent stake worth about $7.7 billion. Senior Chairman Peter G. Peterson, who plans to retire sometime after the IPO, will retain a 4 percent stake worth about $1.9 billion.
The biggest difference is that, unlike Goldman and Lehman, those buying into Blackstone only get a piece of its management division — which carries little voting rights and no direct connection to the portfolio of companies the firm operates.
Further, Blackstone has said compensation costs and other fees tied to the IPO will prevent it from turning a profit for several years.
It will be closely watched by other buyout funds thinking about their own public flotations. Kohlberg Kravis Roberts & Co., Carlyle Group, and a list of other big private equity players are said to be considering their own IPOs.
There had been some speculation that Blackstone would nix its offering because of a threat Congress will impose higher taxes on them. The firm acknowledged 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 U.S. House of Representatives proposes to do.
But the offering was said to be seven times oversubscribed, indicating that those interested in buying a stake in Blackstone brushed off worries about possible tax changes.
The IPO gives investors a rare chance to invest in private equity, which previously was restricted to billionaires looking for a place to park their cash.
“For most investors that get in on the IPO, it is giving exposure to a segment of Wall Street that you wouldn't be able to get into. The demand is large,” said Craig Asche, executive director of the CAIA Association, an industry organization that represents private equity funds and other alternative investment vehicles.
And much of that demand is coming from overseas, analysts said. Richard Hunter, a London-based broker at Hargreaves Lansdown, said the pace of private equity has become the real selling point for investors in Europe. The private equity industry does have a presence there, but it is not as accessible or prevalent as it is in the United States.
“At this moment in time its the fashion isn't it?” he said. “The market has been driven by merger and acquisitions activity and much of this has been driven by private equity. Money is still cheap and that of course boosts the private equity companies' margins when they come to sell.”
AP Business Writer Toby Anderson in London contributed to this report