Blackstone IPO: An Investment Opportunity

For the first time China has decided to make a direct investment in a U.S. private equity fund by investing $3 billion from its currency reserves of $1.2 trillion in private equity firm in U.S. called The Blackstone Group.

The Blackstone Group
Private equity firms buy companies or take controlling stakes, cut costs, restructure the businesses and sell them later for a profit. They usually borrow two-thirds of the money needed to finance their purchases, making for a high-risk, high-return investment strategy. A record $911 billion was invested globally in private equity deals last year, up from $471 billion the prior year. Blackstone group is the second-largest U.S. private equity firm.

Blackstone has invested in over 100 companies in a variety of industries, geographies and economic environments. Blackstone’s current holdings include such diverse companies as Cadbury Schweppes, Center Parcs UK, CineWorld, Deutsche Telekom, Extended Stay America, Michaels Stores, The Nielsen Company, SunGard, Universal Orlando, Vanguard Health Systems and many more. In many of its investments Blackstone has partnered with leading corporations around the world, including Time Warner, AT&T, General Electric, Northrop Grumman, Sony, Time Warner, Union Carbide, Union Pacific, USX and Vivendi. These corporate partnerships have been a key element in Blackstone’s approach to investing.

What Is China Upto
The reason for China’s investment is to gain higher returns from their investments. Investing currency reserves in the U.S. stock market is an aggressive move from China, which has the U.S. Govt worried. Many believe that with higher gains from this investment would tempt China to invest alot more than $3 billion. Blackstone co-founder suspects that Blackstone is just the first one of many more investments China will make in the future. However supporters of this investment argue that it symbolizes that China believes in U.S., consequently playing a role in strengthening the U.S. dollar, atleast short term.

China – Blackstone Bonding
Blackstone has expanded its planned $4 billion IPO to $7 billion to accommodate the Chinese investment. This investment gives China a taste of the booming private equity market. China will take 9.9% non-voting stake in Blackstone, leaving it under the radar screen from U.S. govt scrutiny. China has agreed to hold their investments for atleast 4 years for which they bagged a 4.5% discount. This whole deal is a win-win proposition for both parties. For China it means a role in the global private equity market and higher profits, where as for Blackstone it means increase in access to Chinese markets.

Blackstone IPO Pricing

Blackstone said it plans to offer 133.3 million common units at $29 to $31 each. Another 20 million units may be sold to meet demand, boosting the IPO as high as $4.75 billion plus $3 billion from China making it $7.75 billion. However with plenty of additions and clauses, Blackstone said the IPO could value the firm at $33.6 billion, roughly one-third of Goldman Sachs Group Inc’s market value. This grand total will boost Blackstone’s carry in the financial services industry, making comparisons with some of Wall Street’s heavy public hitters like Goldman Sachs and Morgan Stanley.

Blackstone is not floating its portfolio of companies, but instead its management group. Blackstone plans to list its shares on the New York Stock Exchange under the symbol “BX.”

Labor Federation Makes Noise
In other news the largest American labor federation asked regulators to force changes to the Blackstone IPO. The labor federation told the SEC in a letter it believed Blackstone deliberately structured its public offering to hide the fact that the Blackstone Group LP is actually an offering of interests in pools of investment securities.

Conclusion: The Blackstone IPO is being closely watched by the markets as one of the first from a large U.S. private equity and hedge fund firm.

  • The IPO plans to raise $7.75 billion, pricing the stock at $29 – $31/unit.
  • Blackstone has already racked up $400 billion in deals. The IPO will help it tap new sources of capital for multibillion-dollar acquisitions.
  • Blackstone’s private-equity funds have returned an average 23% and its real estate investments have gained 29%.
  • Blackstone’s Q1 profit more than doubled to $1.13 billion from $487.2 million a year earlier.
  • Revenue totalled $479.4 million and investment gains totalled $3.78 billion, each also more than doubling.
  • Blackstone group has $88.4 billion of assets under management as of May 1.
  • China has shown confidence in the Blackstone IPO and will invest $3 billion.

Cash loaded private equity market, successful multibillion-dollar acquisitions, good management, high return rates, higher profits, higher revenue, support from China, all makes Blackstone IPO one of the most attractive investment opportunity in recent times.

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(Source: DailyFx, DNA)

  • mlkr

    good summary; thnx. r u investing?