This Blackstone IPO could be one of the best things to happen to the equity
capital markets desk of Wall Street banks in years. You wouldn’t necessarily
think so from the way that Bloomberg
is spinning it, though:
Blackstone Group LP’s planned $4.75 billion initial public offering may be
a bonanza for founders Stephen Schwarzman and Peter G. Peterson. What it won’t
be is a windfall for Wall Street, where the underwriters are getting a fraction
of the fees they typically command for IPOs.
Er, no. The underwriters on the Blackstone IPO are getting $170 million. That’s
a lot of money in anyone’s book, and it’s not a fraction of anything: I challenge
you to show me a recent IPO which carried underwriters’ fees significantlly
higher than that.
What Bloomberg means, of course, is that the fees on the Blackstone deal measured
as a percentage, at 3.6%, are much lower than the standard 7% commission
charged by the Wall Street
cartel banks. But you can’t put
a percentage in the bank: much better to have 3.6% of a $4 billion offering
than 7% of a $200 million offering.
Bloomberg does note that the $170 million is hardly all that Blackstone is
going to pay out in fees:
The securities firms are accepting the lower fee because they expect to make
a lot more arranging and financing takeovers when New York-based Blackstone
invests its $19.6 billion buyout fund, the second-biggest ever raised. Schwarzman’s
firm paid $571.4 million for those services last year and $248.1 million in
the first quarter of 2007 alone, according to estimates by industry consultants
at New York-based Freeman & Co.
But what Bloomberg doesn’t note is that
if when the Blackstone
deal is a success, any number of other private-equity IPOs are likely to follow
in its footsteps, including the granddaddy of them all, KKR. Charlie
Gasparino is reporting today that KKR
has now hired Morgan Stanely and Citigroup as underwriters of an IPO he
says could come in the next couple of months – and which might well be
even larger than Blackstone’s.
Take $170 million from Blackstone, then, another $200 million or so from KKR,
and a few hundred million more from Apollo and TPG and Carlyle and everybody
else who’s looking to go public – and soon you’re talking real money.