Taking Blackstone Group public would give the company a license to print money – and could put a lot of dough in the pockets of current management.
NBC’s David Faber reported Friday that Blackstone is working with investment bankers on a planned initial public offering.
While there are a number of motivations for going public, but the possible deal raises a basic question: Does it make sense for a company that takes others private to go launch an IPO?
Blackstone could use the newly issued stock to close future deals, to retain top performers and to attract new talent – and it can always issue additional shares when needed.
“If you’re a smart player in this market, in view of Fortress Investment’s successful IPO and huge valuation, you might as well strike and you want do it ASAP before the field gets crowded,” said Tom Taulli, author of "Investing In IPOs."
Hedge fund Fortress Investment went public in February. While several hedge fund trade publicly in Europe, it was the first in its sector to take the step in the U.S. Some suspect a similar move by Blackstone would be well received and closely watched by others in the sector.
“I think that’s somewhat surprising,” Andrew Seibert, a senior portfolio manager at Stewart Capital, said in an interview on CNBC. “Private equity stays private and therefore there’s no scrutiny and a better opportunity to make money, right? I’m not sure why (Blackstone Group is) tying to go public except to make themselves a fair amount of money.”
Blackstone could use its initial shares to attract and retain top talent.
“An exit strategy is the core theme of any IPO,” said David Menlow, president of IPOfinancial.com. “The IPO underscores the ‘Theory of O’s’ – other people’s energy, other people’s ideas and other people’s money.”
Analysts say Sarbanes-Oxley wouldn’t be a problem for an established company like Blackstone because compliance costs would be just a fraction of its revenue.
“This isn’t a bio-tech start-up where reporting costs could be critical,” said Ben Holmes, publisher of Morningnotes.com. “I think the deal would be poetic -- it makes you smile when you think about it.”
The IPO could provide a new source of capital for Blackstone and it could open the company up to individuals who can’t meet the private company’s current financial standards for investors.
The IPO would provide transparency that might make Blackstone more attractive to investors. Quarterly reporting might also make it easier for Blackstone to close deals, but analysts note it hasn’t had any difficulty doing business as a private company.
“The ability to bob and weave is infinitely easier with a private company,” IPOfinancial.com’s Menlow said. “As a public company, Blackstone would have to satisfy Wall Street with quarterly numbers. A private company isn’t accountable to anyone other than the private investors.”
Blackstone’s name and the clout of a major underwriter such all but assure a strong opening for the IPO. Individual investors would get a piece of a proven company in a sector with high barriers to entry.
But keep an eye on how the deal is structured. Investors won’t know the terms of the deal until Blackstone files its registration statement with the Securities and Exchange Commission. The S-1 hasn't been filed yet, and John Ford, a spokesman for Blackstone, would not comment on Faber's report.
Faber said he did not know how much Wall Street will value the company at, but it could be worth as much as $30 billion.
The deal could represent shares of Blackstone or a fund managed by the company. It’s a good bet that there will be two classes of stock, perhaps “A” and “B” shares, and management will retain control of the company through the “B” shares.
The size and price of the planned deal will go a long way in determining how much sizzle Blackstone’s IPO will have on the first day of trading. However, the deal's structure also will be important. Investors will be looking to see how much of the deal's proceeds will be reinvested into the company and how much will go into the pocket's of the company's management.
“The use of net proceeds will be telling,” Taulli said. “If it’s too obscene, it could cause some ripples. But the good thing about Wall Street is that being obscene is a good thing."