The Irony of a Blackstone IPO
1. The practice of professing beliefs, feelings or virtues that one does not hold or posess; falseness.
2. An act or instance of such falseness.
CNBC and The Wall Street Journal yesterday broke the news that private equity power player The Blackstone Group is preparing for an IPO. Kind of ironic since private equity companies make all their money taking public companies private under the guise that the business will have much more flexibility outside of the regulatory environment of the public markets.
The Breaking Views column in today’s Wall Steet Journal, “Why a Blackstone IPO? Apostle of Going Private Covets Extra Liquidity; Schwarzman’s Big Payday” (subscription required), is priceless:
To persuade managers of large companies to flee from the public markets, buyout barons argue that companies under their control are not tied up with regulations like Sarbanes-Oxley, which Mr. Schwarzman [Co-Founder and CEO of The Blackstone Group] has called ‘the best thing that’s happened to our business’. Then there are the financial inducements – the opportunity for executives to make heaps more money without the embarrassing side effects of disclosure.
Buyout firms also pride themselves in running companies with a long term focus. That means their managers don’t have to worry about what Mr. Schwarzman has dubbed ‘the tyranny of quarterly earnings.’
Mr. Schwarzman argues that this patient approach creates more value. Public ‘shareholders are not willing to put up with delayed gratification,’ he says.
Following this argument to its conclusion suggests private equity firms should remain private.
So what benefit does the public market confer to Blackstone? In a word: liquidity. That is what the IPO of Fortress Investment Group, a manager of hedge funds and private equity funds, showed. That firm’s valuation, at 30% of managed assets, implies Blackstone is worth well in excess of $20 billion. Throw in its advisory businesses and Mr. Schwarzman’s personal stake could be $8 billion. What’s more, he can cash in some of these gains, without losing control of his firm. For that, he has the public markets to thank. (Emphasis Added)
I guess he didn’t read Starbucks Founder & CEO Howard Schultz’s memo about the costs of selling out. He must have missed the excellent new book Firms of Endearment: How World Class Companies Profit from Passion and Purpose which shows that companies committed to principle and excellence outperform those strictly focused on the bottom line. Maybe he’s just tired of delaying gratification.