Jonathan Alcorn/Bloomberg NewsDavid M. Rubenstein, a co-founder of the Carlyle Group.
8:48 p.m. | Updated
The Carlyle Group took its biggest step Tuesday toward joining an elite club: private equity giants with public stock tickers. But as the stock and debt markets whipsaw, the timing of an initial public offering remains unclear.
Still, the filing propels Carlyle along the path already trod by several of its biggest rivals, including the Blackstone Group and Kohlberg Kravis Roberts. And it marks the latest step in the evolution of the firm, from a private equity shop with deep ties to political figures to a $153 billion investment titan with hedge fund and real estate arms.
Stocks of private equity firms, to be sure, have generally fared poorly. Blackstone, which priced at $31 in 2007, began tumbling soon after the firm’s offering. They closed on Tuesday at $12.50. And Apollo Global Management, which gained a public ticker in April after having traded on a private exchange, closed on Tuesday at $12.19 — well below its $19 initial offering price.
Despite filing for an initial offering on another volatile day in the stock market, Carlyle is not expected to plunge into unfavorable market conditions, having waited years to go public. But it is currently considering going public by the end of the first quarter in 2012, according to a person briefed on the matter who was not authorized to speak publicly.
Once known for its investments in military contracting, Carlyle has since participated in dozens of big name takeovers, including those of Dunkin’ Brands and Hertz.
The firm has gone on an acquisition spree over the last year to diversify its business beyond its core private equity funds and make itself more attractive to its investors and public shareholders. Among those deals were taking majority stakes in two big hedge funds and in a European fund of funds.
Carlyle, founded in 1987 in Washington, had made little secret of its desire to go public. As far back as 2007, David M. Rubenstein, one of the firm’s co-founders, described it as “a natural candidate to go public.”
Tuesday’s filing, like many initial prospectuses, discloses relatively little about Carlyle’s initial offering plans. Its disclosed fund-raising intention, $100 million, is a preliminary figure meant only to calculate the filing fee. And the voluminous document lacks juicy details like the firm’s valuation or the compensation of its top executives.
Still, Carlyle opened its books to the public a little, showing how yet another private equity firm had bounced back from the lows of the financial crisis. Last year, the firm reported $2.8 billion in revenue and $1.5 billion in net income, both significantly higher than 2009.
Using economic net income, a nonstandard accounting measure preferred by Blackstone and K.K.R., Carlyle earned just over $1 billion.
By comparison, Blackstone reported $3.1 billion in revenue and $485.5 million in economic net income last year.
Carlyle showed even more improvement during the first six months of this year, reporting nearly $2.1 billion in revenue and $770.2 million in economic net income for the period.
Its revenue from management fees has grown 16 percent thanks to several fund acquisitions, while its performance fees have jumped 971 percent because the value of its investments has improved.
Yet it is not clear whether Carlyle can sustain those gains, as the stock and credit markets come under stress from concern about weakening economic growth. Borrowing costs have been rising in recent weeks, threatening to erode the ability of private equity firms to strike lucrative leveraged buyouts.
Carlyle also confirmed that changes to its management structure that reflect its shift from a private partnership to a publicly traded company. Its three co-founders will remain at the top: Daniel A. D’Aniello will become the firm’s chairman, while William E. Conway Jr. and Mr. Rubenstein will be co-chief executives. (Together, the three are known inside the firm as “D.B.D.”)
Many in the buyout industry see the firm’s initial public offering as a way for Carlyle executives to cash out on their holdings eventually, as Blackstone co-founder Peter G. Peterson did in his shop’s 2007 I.P.O. That could eventually allow the co-founders to pass the firm’s reins onto a new generation of leaders, which includes Glenn Youngkin, Carlyle’s chief operating officer.
But initially, major equity holders, including the co-founders and outside investors, will be subject to lock-up agreements. Mubadala, an investment arm of the Abu Dhabi government that took a 7.5 percent stake in Carlyle in 2007 and invested an additional $500 million last year, can begin selling down its holdings in stages after a year. Another is the giant California pension fund Calpers, the California Public Employees’ Retirement System, which took a 5.5 percent stake in 2001.
Peter Lattman contributed reporting.
Article source: http://dealbook.nytimes.com/2011/09/06/carlyle-files-for-an-i-p-o/?partner=rss&emc=rss