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Carlyle Group planning IPO in about a year

By Thomas Heath
Washington Post Staff Writer
Monday, December 6, 2010; 9:18 PM

The Carlyle Group, the District-based investment giant, is saying for the first time that it will likely sell ownership shares to the public, a move that could reap billions of dollars for its partners and require a very private firm to become more transparent.

Although an initial public offering is probably at least a year off, closely-watched Carlyle - with its $98 billion war chest - would allow ordinary individuals to own a piece of its private-equity business, which primarily raises massive pools of money to buy and turn around distressed companies.

The world's second largest private-equity firm, Carlyle controls a range of North American icons such as Dunkin' Donuts and Hertz to Brazilian lingerie company Scalina. Going public would rank the firm among the most valuable companies in the Washington region. It's biggest home runs include the sale of United Defense and the recent sale of MultiPlan, a health-care management company, both of which were sold at huge profits.

News of a potential public offering came from Carlyle co-founder William E. Conway Jr., who oversees the firm's investments. Though providing no timetable, Conway said in an interview with Bloomberg Businessweek that going public would allow Carlyle to raise capital for its 78 investment funds, which own 265 companies from offices in 19 countries.

"There will be significant advantages to having a lot more capital," Conway, 61, said. He also indicated that the company's traditional investors - public pension funds and wealthy individuals - were hard-pressed to make new commitments on the heels of the recent financial crisis.

"Investors are reducing commitments to funds and making economic terms much less attractive," he said.

Dan Primack, private-equity specialist and senior editor at Fortune.com, said that if Carlyle goes public, "we are talking about 16 months from now. I don't think anybody has a clue to what the market will look like then. One clue would be to see what the current private-equity firms, KKR and Blackstone, are trading at."

Carlyle, with 300 local employees and 600 more around the world, has been mulling a public offering of stock for years. At the same time, it has raised its public profile, making significant hires to its public affairs and its investment teams.

Co-founder David M. Rubenstein has made a splash with big gestures, such as three years ago when he placed his $21 million copy of the Magna Carta on permanent loan to the National Archives. This year he became chairman of the John F. Kennedy Center for the Performing Arts.

The company, founded in 1987, has seen two of its biggest rivals, Blackstone Group and KKR, go public in recent years with mixed success. KKR's shares have grown in value since debuting in July in New York. But Blackstone's stock has sunk to less than half of its IPO price, which was unveiled in 2007, before the financial crisis.

Still, the idea of putting a precise price tag on the value of their franchise - and having the ability to cash in - may bring both tangible rewards and greater status, analysts said.

"Their main competition in the private-equity space, KKR and Blackstone, and coming soon Apollo, are going public. There is a sense that you need to keep up with the Joneses, or the Kravises, as it were," said Primack, referring to KKR co-founder Henry Kravis.

Carlyle says it has returned around 20 percent annually, after fees, to investors who entrust their money to the firm. Those with a stake in the company are limited to more than 70 of the firm's partners and two outside entities.

In 2007, Carlyle sold a 7.5 percent share of its general partnership to an investment group owned by the government of Abu Dhabi for $1.35 billion, which valued the company at $20 billion. The only other outside owner is a 5.5 percent stake that was sold to the California Public Employees' Retirement System in 2001 for $175 million.

Carlyle spokesman Christopher Ullman said, "We have not made any decisions regarding if or when we might go public."

Sources familiar with the firm's prospects said any public sale is at least a year off. But Carlyle has begun talking about the potential of a stock offering as a selling point to some potential hires, according to the sources, who spoke on the condition of anonymity because no final decision has been made.

The firm's investments have not all turned out well. In recent years, the company's bet on a German auto parts manufacturer went sour when the firm declared bankruptcy and cost Carlyle its $180 million investment. In addition, its Carlyle Capital affiliate in Europe failed, triggering a write-off of $700 million.

After a drought of activity in 2009, Carlyle this year pulled the trigger on 33 corporate deals and did an additional 10 real estate transactions. In November, Carlyle portfolio company Booz Allen Hamilton, the government consulting giant, went public on the New York Stock Exchange, though its stock is now below its IPO price.

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