Equity giant files for IPO
Private equity company Carlyle Group filed for an IPO on Tuesday, a long-awaited move to catch up with rivals Blackstone, KKR and Apollo, but the volatility of global markets means an offering is unlikely until the first half of 2012.
The IPO will put Carlyle, famous for its Washington connections, under even more public scrutiny as it fulfills a longtime desire to become a publicly traded global brand.
Still, it could be a difficult road ahead: The IPO market has struggled as concerns about Europe's debt crisis and a weak recovery in the United States have made markets volatile. A number of deals were withdrawn last month.
"There is going to be pricing pressure for this deal, given the weak demand for financial IPOs and the performance of the listed companies," said Josef Schuster, founder of Chicago-based IPO research and investment house IPOX Schuster.
Carlyle's business model partly depends on using the public markets as an exit for its portfolio companies.
The market conditions and the poor performance of other listed private equity players such as Blackstone Group and Apollo Global Management, and the complex listing of Kohlberg Kravis Roberts & Co, may also dampen investor appetite.
Shares of Blackstone, valued at $14.6 billion, have dropped by a third since a near three-year high in late April.
Carlyle's filing with the Securities and Exchange Commission lists an offering size of $100 million, but that may be a placeholder amount. Sources said in June the offering could be as large as $1 billion.
Carlyle is expected to move ahead with an IPO in the first half of next year, depending on market conditions and regulatory approval, two sources familiar with the situation said.
A flotation early next year would avoid the holiday doldrums and give the market more time to recover, said Steven Kaplan, a finance professor at the University of Chicago who specializes in private equity.
"This is probably a mildly bullish signal about next year," Kaplan said. "They wouldn't be doing this if they thought we were in the fall of 2008."
Still, the timing of the filing raises questions. Investors in the last six weeks have shied away from the junk bond market and flocked to Treasurys and other lower-yielding assets that are considered safer, Bank of America Merrill Lynch data show.
Junk bonds are often used to finance buyout deals. Firms such as Carlyle could be in a challenging position if both the IPO market, which provides an exit, and the junk bond market, which provides financing for new deals, are struggling.
Carlyle, which has invested in companies including Dunkin Brands, Alliance Boots and Freescale Semiconductor, was valued at $20 billion in September 2007, before the credit crisis sent stock markets sliding.
The buyout firm said it generated economic net income -- a measure of profitability used by private equity firms -- of more than $1 billion last year and about $770 million in the first half of this year.
Blackstone's second-quarter economic net income was $703 million.
Carlyle manages about $153 billion in assets, compared with Blackstone's $159 billion.
Carlyle said in the SEC filing that JPMorgan, Citigroup and Credit Suisse are underwriting the IPO.
The filing did not reveal how many units the company plans to sell or their expected price.