What’s Carlyle really worth?
That’s the question asked by The Deal today. Carlyle, in case anyone has forgotten, has filed to go public and an IPO is expected in the first half of 2012.
Washington D.C.-based Carlyle wants to join the ranks of the Blackstone Group, KKR, Apollo Global Management and Fortress Investment Group which have already gone public. Blackstone, the PE firm led by Stephen Schwarzman, was the first. The global buyout shop raised $4.13 billion in 2007. Blackstone shares are currently trading at $13.67, well below their $31 IPO price (Blackstone currently has an $18.02 billion market cap).
Carlyle has reportedly met with analysts to convince them that they’re worth at least as much as Blackstone. Carlyle, according to the Bloomberg story from August, claims that its steadier earnings should reward shareholders with a more predictable dividend than other PE firms.
The Deal doesn’t think that Carlyle deserves the lofty valuations that Blackstone received when it went public at 22x earnings. But valuing Carlyle is tough. “PE firms are unlike manufacturers or retailers, whose profits materialize in short order,” The Deal says. “Much of a buyout firm’s gains are bottled up in intermittently traded, hard-to-evaluate assets and can take years to realize.”
Most PE firms use a metric called “economic net income” or ENI to tally revenue and earnings. But a big chunk of revenue and ENI is “phantom,” The Deal says. Carlyle collected only 52% of the revenue it registered over the past year while Blackstone came in with 53%. More importantly, ENI is based on what holdings are worth today. However, by the time the assets are sold “market climate and asset valuations are liable to have changed,” the story says.
For what it’s worth, Carlyle reported $770.2 million in economic net income for the six months ended June 30, up from the $190.4 million reported for the same time period in 2010, according to the firm’s S-1 filing. The firm had $1 billion ENI for all of 2010.
I was surprised at the lack of valuations for Carlyle (in light of ENI’s mysteriousness this is understandable). Valuations for the PE firm range from BreakingViews’ $7.5 billion to Fortune’s $10.86 billion (before the IPO filing).
The Deal’s valuation for Carlyle is lower. If Carlyle when public TODAY it could be valued at roughly 2.5 to 3.5x ENI. This translates to a $4 billion to $6 billion market cap, the story says.