By David Berman
Private equity groups will forever be upheld as terribly self-interested players in the IPO market. Bloomberg News reported on Monday that Carlyle Group was gearing up for an initial public offering, possibly in late 2011, raising some unpleasant memories in the process. As the Wall Street Journal's Deal Journal put it, “the experience of their private-equity brethren may be reason enough to rethink the idea.”
In some ways, this is unfair criticism. As I've pointed out more than once in this space, IPOs tend not to be the best-performing investments in the near term, at least for small investors who buy the newly minted shares on the open market soon after they start trading.
Part of the reason is that companies tend to time things in their favour, going public when economic conditions are strong and interest in their industry is nearing infatuation levels. Blackstone Group PLC (BX) went public in 2007 at a time when private equity groups were seen as having the magical ability of spotting undervalued assets in need of a little spit and polish. Blackstone shares went public at $31 (U.S.), but they have since slumped about 55 per cent, becoming the poster child for poorly timed IPOs (or brilliantly timed, depending on your perspective).
In the case of Carlyle, Bloomberg pointed out that the company has made a total of $16-billion in buyouts this year, but that private equity firms have been struggling to raise money amid fallout from the financial crisis. Going public would allow the company to use its stock as a kind of currency to buy companies instead.
If the experience of Blackstone is any indication, investors could indeed be wary of another private equity IPO – but again, is private equity really that much different than any company cashing in on its popularity?