Who stands to get rich from the Caryle IPO? Several are expected to join the ranks of Washington billionaires
The IPO price values Carlyle at around $6.7 billion. Inasmuch as its three co-founders together own 51 percent of the company, their stakes would be worth more than $1.1 billion each if the stock holds its value. That would assure the status of all three — David M. Rubenstein, William E. Conway Jr. and Daniel D’Aniello — as near the top of Washington’s richest residents.
Despite years of meticulous planning, Carlyle’s debut, under the symbol “CG,” is facing head winds for its Thursday opening because private-equity firms are difficult to value, according to industry observers.
The stock of Carlyle’s publicly held peers such as Blackstone, Oaktree Capital and Fortress Investment Group have all performed poorly since their initial public offerings.
“People in particular don’t know how to incorporate capital gains and carried interest in predicting future revenue and performance,” said Colin Blaydon, director of the private-equity center at Dartmouth College’s Tuck School of Business. “They tend to discount that and rely on the fee flow. It’s why prices have not done well. Carlyle is trying to see if they can do it differently and succeed where the others have struggled.”
Carlyle had cast its $23-to-$25 price range as a conservative approach, designed to manage expectations and build the company’s value for the long-term shareholders.
In hopes of reassuring markets, the company said in regulatory filings that none of its partners will sell any shares at the time the firm goes public. In addition, the firm has self-imposed restrictions on sales that allow its founders and employees to sell shares only during certain windows.
Scott Sweet, senior managing partner at IPO Boutique, which rates IPOs for individuals and institutions, said that although Carlyle has a plan for long-term stability, investors are concerned about an eventual brain drain.
“You can bet once the big three [founders] leave, they will take massive and monstrous dividends with them,” Sweet said.
The three co-founders each took home $138 million last year, according to filings earlier this year.
Los Angeles-based Oaktree went public last month during a rocky patch in the stock market and saw its shares open below its $43 offering price. Oaktree sold only around $400 million of the more than $500 million in stock it had hoped to sell.
According to Sweet, there was lack of demand for Carlyle shares leading up to the IPO, which was driving the price below Carlyle’s $23 benchmark.
Sweet said the stock was a victim of the performance of its industry counterparts, including the Apollo Group and Blackstone.
“All the previous private-equity firms have performed poorly,” Sweet said. “Apollo and Blackstone are down 44 percent from their offering price. These have not been good investments.”
Fortress Investment’s stock closed this week at 79 percent below its 2006 offering price; Blackstone is around 56 percent below its IPO price; Apollo Global Management is around 32 percent below its offering.
“Private-equity stocks are not well understood,” Blaydon said.
Carlyle has $147 billion in assets under management.
Its projected market value is much lower than in the private-equity industry’s heyday back in 2007, when giant deals funded with cheap credit were the norm. In 2007, the Abu Dhabi state investment firm Mubadala paid $1.35 billion for a 7.5 percent stake in Carlyle, valuing the firm at $18 billion.