Blackstone IPO is biggest in US this year

NEW YORK: Blackstone Group LP on Monday said it plans to raise as much as $4.75 billion in what would be the year’s largest US initial public offering, a day after agreeing to sell a $3 billion stake to China.

The offering, the largest by a private equity firm, comes as low debt costs spur a boom in buyouts, amid some concern the industry’s growth may be tough to maintain. Blackstone said the IPO could value the firm at $33.6 billion, roughly one-third of Goldman Sachs Group Inc’s market value.

“Blackstone is a heck of an organisation, which has built enormous franchise value and barriers to entry for rivals,” said Jeff Schappe, chief investment officer at BB&T Asset Management in Raleigh, North Carolina. “It is still able to take companies private at relatively attractive valuations. That should give it a premium valuation (in an IPO).”

In its prospectus, Blackstone said it plans to offer 133.3 million common units at $29 to $31 each, for proceeds of $3.87 billion to $4.13 billion.

Another 20 million units may be sold to meet demand, boosting the IPO as high as $4.75 billion. That’s 19% more than the $4 billion Blackstone originally estimated.

On a per share basis, the valuation could top that of Goldman, and fall below smaller private equity rival Fortress Investment Group LLC, which went public in February.

“Valuations of private equity firms have got to be higher than they have ever been,” said Colin Blaydon, a professor at Dartmouth College’s Tuck School of Business and director of the Centre for Private Equity and Entrepreneurship.

Blackstone was founded in 1985 by Stephen Schwarzman and former Lehman Brothers chief Pete Peterson.

The offering could become the sixth-largest US IPO ever, according to Dealogic. It could also rank as the world’s third-largest IPO so far in 2007, after offerings of $7.99 billion by Russian bank VTB and $5.92 billion by China Citic Bank Corp, Dealogic said.

The midpoint of the IPO range values Blackstone at more than 14 times 2006 earnings, compared with the 17 times trailing multiple that Fortress carried when it went public. Fortress shares have since risen by about half.

Goldman carries a 10 multiple, after last month closing a record $20 billion private equity fund. Blackstone said it had as of May 1 raised $19.6 billion for its next fund.

Private equity firms buy companies, restructure their businesses, and sell them.

Blackstone transactions this year include a $23 billion takeover of Sam Zell’s Equity Office Properties Trust, and a $6.76 billion purchase of Alliance Data Systems Corp, which provides transaction, credit and marketing services.

Blackstone is selling units that carry limited voting rights. Beijing would hold its 9.7% nonvoting stake for at least four years.

Existing owners, including senior managing directors and American International Group Inc, would get as much as $4.47 billion of proceeds from the two offerings. Other proceeds would fund expansion and pay off debt.

The firm did not say when it plans to go public.

David Menlow, president of IPOfinancial.com in Millburn, New Jersey, said an IPO could happen within two weeks. “This is a deal with no financial benchmarks, so it’s tough to determine whether the IPO is overpriced or underpriced,” he said.

Blackstone said first-quarter 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. The firm said it had $88.4 billion of assets under management as of May 1.

Blackstone plans to list its units on the New York Stock Exchange under the symbol “BX.” Citigroup Global Markets Inc and Morgan Stanley are the lead underwriters. Credit Suisse, Deutsche Bank Securities Inc, Lehman and Merrill Lynch & Co are joint book-runners.