I was in New York when Fortress went public, and it easily supplanted the weather as small talk du jour. One of my Buyouts Magazine colleagues kept calling out trading price updates, while most every phone call began with, “Well, whaddya think about that Fortress valuation?” One such call, however was more memorable. A fund-of-funds manager asked sarcastically: “Think Schwarzman is on the phone with Goldman yet?”
Apparently he was. As CNBC first reported on Friday, Blackstone Group is in deep discussions with Goldman Sachs about an IPO, with a filing likely by month’s end. The news quickly spurred the biz media whoredom to attention (including yours truly), and a series of storylines began to emerge. Here they are:
* This isn’t all that big a deal, considering that KKR already went public.
That would be accurate, if only it were true. KKR’s offering in Amsterdam last year was for a special purpose investment vehicle (mostly co-investment), not for a piece of KKR’s management company. Moreover, it matched up poorly to KKR’s more traditional private equity funds, in that it had less transparency, fewer investor protections and higher fees. Blackstone’s offering, on the other hand, is expected to be for the actual management company – not for specific portfolio plays. More brand equity than private equity.
* The Blackstone Group is being hypocritical. How can it go public while simultaneously telling public companies that they’d be better off by going private?
There is certainly some irony here, but no hypocrisy. What this storyline misses is that the “go-private” argument does not assume eternal privatization. Instead, it is a relatively short-term fix that can give a company more flexibility for growth or restructuring (SOX is a red herring argument for companies large enough to get bought by Blackstone). At some point, the company is most likely going public again. If private equity firms like Blackstone really looked down upon the public markets, they wouldn’t buy big companies in the first place.
* Isn’t there some contradiction in a “private” equity firm going public?
Yes, except that Blackstone really is more an asset management firm than a private equity firm. Private equity is still its primary focus, but it also has large investment practices in real estate, mezzanine and mezzanine – plus corporate advisory and fund placements businesses. People also used to say I-banks shouldn’t go public…
This will lift Blackstone’s veil of secrecy.
No it won’t. If we use the Fortress IPO – or common sense – as a guidelines, the Blackstone IPO won’t tell us much more about the firm than we already know. The only exception would be executive compensation and more detailed management fee info – but the rest will just be a rehash of fund sizes and select portfolio names. Don’t expect the type of binder that a limited partner would receive. Blackstone doesn’t need to do it.
How will Blackstone’s limited partners react?
Most likely with ambivalence, particularly because this IPO would not dilute their existing LP positions (like the KKR offering arguably did). Only caveat here is that Blackstone needs to strike a balance between fiduciary responsibility to its limited partners and to it new public shareholders. This could become touchy when it comes to issues like management and transaction fees, and needs to be dealt with preemptively. Don’t ask me how, because I don’t know… Also, expect LPs to ask about senior exec dedication to the firm’s future now that they’ve taken out serious equity, plus additional questions about how junior partners are being incenivized.
* Will this lead to other private equity firm IPOs?
Yes, or at least yes to filings.