The Carlyle Group, the Washington area’s most prominent investment bank, turned heads on Tuesday when it confirmed plans to move ahead with its first public sale of stock, an initial offering that could be worth $1 billion or more.
The private equity company said it will use the funds to repay debts and finance new deals. In a filing with the Securities and Exchange Commission, the firm lists a placeholder offering size of $100 million, but market-watchers think the final sale could be as large as $1 billion. The company was worth $20 billion four years ago in 2007.
“Carlyle intends to use the net proceeds from the offering to repay indebtedness and for general corporate purposes, including general operational needs, growth initiatives, acquisitions and strategic investments and to fund capital commitments to, and other investments in and alongside of, its funds,” Carlyle said in a statement.
But analysts cautioned Tuesday that the IPO market for private equity firms has only disappointed investors in recent years, pointing to underperforming offerings from competitors like Blackstone Group, Kohlberg Kravis Roberts, Fortress Investment Group and Apollo Global Management. They aren’t holding their breath that Carlyle will do much better.
“I don’t like it,” said Scott Sweet, senior managing partner at IPO Boutique. “These companies have done nothing for their shareholders. They are not good investments.”
David Menlow, president of IPOfinancial.com, said he doubts the Carlyle sale will pique investor interest.
“The real question is whether there will be investor appetite for this firm,” Mr. Menlow said. “… Right now, I don’t believe this is an offering we’re going to be able to get behind as far as any kind of positive rating.”
The problem is that private equity stocks have a track record of failing to live up to expectations. “History would point toward a continuation of the trend that we’ve seen so far,” Mr. Menlow said.
Blackstone Group started out around $35, but has since dropped and is now trading around $12. Apollo Global Management went public earlier this year at $18 a share, but has since dipped to $12, and KKR broke the $18 mark earlier this year, but is now trading at $11. Fortress, which began trading at around $30, is now trading at only $3.
“Each of these IPOs were done when the market was better” than it is likely to be for Carlyle, Mr. Sweet explained.
“The incumbents haven’t really given you a lot of hope,” said Josef Schuster, founder and owner of IPOX Schuster in Chicago.
To defy this trend of underperforming private equity stocks, he suggested Carlyle start out at a lower price and let the stock climb.
“It definitely has to come at a discount,” he said.
The offering of the stock sale was not a surprise - Carlyle co-founders David Rubenstein and William Conway have been quietly gauging investor reaction in recent weeks.
In its SEC filing, Carlyle revealed net income for the six months ended June 30 was $770.2 million, compared with just over $1 billion in the same period in 2010. The firm’s assets under management totaled approximately $153 billion at June 30.
Questions still remain about the exact timing of Carlyle’s IPO. With so much market volatility in recent months, many companies have delayed their public offerings. Ten of the last 13 IPOs have been postponed, Mr. Sweet said. Overall, 216 IPOs have been filed but are still waiting to be sold, he added.
“A lot of companies feel that they cannot get their best price right now and are just waiting,” Mr. Sweet said. “The IPO window can be red hot or ice cold. Right now, it’s closed.”
• Tim Devaney can be reached at tdevaney@washingtontimes.com.
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