With KKR’s move to “do a Blackstone” and file an IPO prospectus on Tuesday, the veil is now officially lifted from two of the most secretive and powerful partnerships around. The arch rivals will each claim supremacy, predicts the WSJ, while for the onlooking media, there seems to be everything — and nothing — to say about all this.
Interestingly, the Journal’s MarketBeat blog (which last week unveiled its “Schwarzometer” to monitor how private equity fares in the public market) takes an almost opposite view to the FT’s Lex column.
We’re not making any judgements here but it’s worth considering these two distinct views. MarketBeat notes that the 7.5 per cent slide in Blackstone’s “units” straight after its debut last week made it “the second worst IPO in the US this year in terms of performance from the first day to the second,” according to Thomson Financial data.
Part of the problem with Blackstone involves valuation, which can normally be done by comparing a stock to its peers, notes MarketBeat. “But in this case, the only other stock comparable to Blackstone is Fortress Investment Group, which went public in February, and those two firms don’t manage funds in precisely the same way.”
The same problem will apply to KKR, although with a third buy-out giant going public, the Schwarzometer is at least gathering some respectable mass.
Blackstone’s shares, meanwhile, are still trading below their IPO price. Fortress’s spiked on their first day of trading, but have slumped ever since, says MarketBeat, declaring that it is “no prognosticator, but it’s tough to see why the outlook should be much brighter for KKR, which has been involved with two of the most highly leveraged LBOs in recent months, those of Dollar General and US Foodservice”.
Not that private-money firms are discouraged from going public by such performance, nor by threats of higher taxation, nor by worries that troubles in the credit market are affecting buyouts and hedge funds. Of course, they’re still raising plenty of cash, and as the Journal’s Dennis Berman points out, they may have $1,500bn in spending power. “But it still seems as good a time as any for them to take some money off the table.”
Lex, by contrast, says that even though Blackstone may be trading below its offer price, it “still commands a serious valuation at more than $30bn”. The extraordinarily benign credit conditions that have fuelled the buy-out boom may have wobbled recently, but that has not stopped massive deals to take Hilton and Bell Canada’s parent BCE private in recent days.
Also in KKR’s favour, it has learned from Blackstone’s mistakes, says Lex. “It is not attempting to use the aggressive option-based accounting approach to carried interest that Blackstone was forced to abandon. And KKR’s principals are not taking huge slugs of cash out of the business in contrast to Blackstone’s founders.”
Overall, KKR is simply pressing on while the going is still pretty good — a strategy that Lex believes makes sense.
Perhaps, though, the last word should go to Deal Journal, which has gone right down to the basics, crunching the numbers to see how the two buy-out giants really stack up.
Size of offering:
KKR: $1.3bn
Blackstone: $4.1bn
Assets under management:
KKR: $53bn
Blackstone: $88bn
Founded:
KKR: 1976
Blackstone: 1985
Investments Professionals:
KKR: 139
Blackstone: 400
Fee and investment income (2006):
KKR: $4.4bn
Blackstone: $8.7bn
Net Income (2006):
KKR: $1.1bn
Blackstone: $2.27bn
Average Annual Returns:
KKR: 20.2 per cent
Blackstone: 22.6 per cent
Top dog’s stake, pre offering:
KKR (Kravis/Roberts, Class A voting shares) : 37.5 per cent each
Blackstone (Schwarzman, partnership units): 30 per cent
Length of Prospectus (excluding addenda):
KKR: 204 pages
Blackstone: 270 pages