In Blackstone’s headquarters at 345 Park Avenue in New York City, the mood could not have been anything but gloomy last week, with shares in the newly public private equity group closing more than a fifth below its listing price on Friday, writes James Politi, the FT’s US M&A correspondent.
But for John Studzinski, who runs the firm’s deal advisory business, the week had gone well - so well, in fact, that he gave a rare interview to Politi.
After joining Blackstone last year from HSBC in London, Mr Studzinski could finally relish clinching a crucial mandate, with his role in advising the China Development Bank in its acquisition of a large stake in Barclays to help fund an increased bid for ABN Amro.
Blackstone’s role in the transaction partly came from China’s decision to invest $3bn in the private equity group’s IPO last month. But even so, it highlights an anomalous, yet growing corner of the empire built by Steve Schwarzman and Pete Peterson. No other large US private equity group, from KKR to Carlyle and TPG Capital, offers M&A advice to corporate clients, notes Politi.
Mr Studzinski, an M&A man from way back, “feels he is carrying the legacy of Blackstone’s roots”, says Politi. In 1985, Mr Schwarzman and Mr Peterson set up the firm with a $400,000 balance sheet as an M&A boutique. It evolved into one of the largest US private equity specialists in LBOs and real estate deals.
“This was the original business. The culture of Blackstone came out of an M&A culture,” says Mr Studzinski. “Steve Schwarzman is involved in every fairness opinion and every piece of formal advice that is given”, he says, while refusing to be drawn on Blackstone’s share price performance or the IPO.
Mr Studzinski’s team is focused on capturing the same kinds of independent, conflict-free, advisory mandates that have led to the creation of several new boutique banks, such as Moelis Advisors, Centerview Partners and Perella Weinberg, notes Politi.
“But while Blackstone does not sell myriad financial products as do the large investment banks, the suspicion is that there may be a glaring conflict at the heart of the firm”, Politi adds.
With Blackstone’s private equity bankers trawling the world for buy-out candidates, which chief executive could be sure that revealing M&A and other plans to Blackstone wouldn’t make his or her company vulnerable to a takeover?, he asks.
Not surprisingly, Mr Studzinski, one of Morgan Stanley’s chief rainmakers in Europe before moving to HSBC, says there should be no such fears: “We go to our clients with absolute confidentiality, independence and integrity,” he says.
“In a lot of situations today there is an advisory component, a private equity component and perhaps a real estate component. In some cases, we start out in one place and we end up in another. But it is always clear who is the advisory banker and who is the private equity banker”.
Judging by the recent growth of Blackstone’s advisory business, many clients seem comfortable with the arrangement, says Politi. According to its IPO prospectus, Blackstone’s financial advisory revenues have grown from $93.5m in 2001 to $260.3m last year and the unit employs about 164 people, or about 20 per cent of the group’s total.
Aside from the Barclays deal, Blackstone’s largest transactions have involved helping companies sell themselves to rival private equity firms. Last year, it worked on the $27bn MBO of Kinder Morgan, the pipeline operator, to a group led by Goldman Sachs, and advised Albertson’s, the grocery store chain, in its $18bn sale to a consortium including Cerberus.
Recently, Blackstone found a niche in financial services, working for Bear Stearns in connection with the collapse of two large hedge funds, and Basis, the embattled Australian fund, in its negotiations with creditors, Politi writes.
Under Mr Studzinski is a team of bankers who in some cases have been at Blackstone for more than a decade. These include Jonathan Koplovitz, a former banker at Wolfensohn & Co and Bear Stearns who has worked on many large insurance and power deals and AJ Agarwal, former Bain & Company consultant who has mainly worked on media and leisure deals.
Newer arrivals include William Oglesby, a former CSFB banker, who heads the Atlanta office, and Christopher Pasko, who joined this year after leading Morgan Stanley’s east coast technology group. Blackstone has also hired Francisco Rey, a top telecoms banker at Merrill Lynch in Europe, people familiar with the matter say, adds Politi.
In some cases, Blackstone’s advisory business earns fees from advising its private equity and real estate teams on their deals, such as the $39bn purchase of Equity Office Properties, the commercial real estate group, this year.
However, Mr Studzinski says his troops shouldn’t count on that: “There are situations when we are brought on by Blackstone. But when we bring in a new partner, we say don’t assume you have a captive client.”
