IPO Stocks: Private Equity's Blackstone Debuts, KKR Files
By Ann Sosnowski
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M&A has hit a worldwide amount of $2.5 trillion in the first half of 2007.
The second private-equity company to go public, Blackstone, gained 23% today on its first day of trading.
Now KKR wants to join the party, filing an IPO today at a $750 million offering.
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IPO Stocks: Private Equity’s Blackstone Debuts, KKR Files
Two points today, both on subjects that are affecting the continued rally in this market… First a quick update on mergers and acquisitions.
According to Thomson Financial, M&A deals around the world rose a whopping 53% to $2.5 trillion in the first half of 2007.
In 2006, global M&A activity surpassed $4 trillion in deals… so for 2007 we’re more than halfway there. This is exciting news for the market, and for investors who continue to pick up shares during the current M&A boom.
As we know from Morgan Stanley’s (MS:NYSE) earnings announcement this week, investment banks are increasing earnings through increased M&A advisory and investment banking. Goldman Sachs (GS:NYSE), the top underwriter of mergers and acquisitions, also became the leader in Europe as it gained new advisory contracts.
The next few earnings announcements for all of these investment banks are bound to be fantastic.
IPO Stocks: Blackstone’s First Public Session Pushes Stock Up 23%
The other phenomena pushing the market this year is an increased IPO market… Today, Blackstone Group (BX:NYSE), the second private equity buyout company, rose as high as $38 per share after going public in a $4.1 billion offering around $31 per share, 23% since the morning. Obviously, there was a high demand for BX’s stock, or else the company and its underwriters wouldn’t have agreed to release the stock a week earlier than originally anticipated.
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The entire private equity industry has received bad press recently, as Congress is introducing, and hoping to approve, legislation that makes investment firms pay capital gains taxes of 35% like many corporations are currently taxed, more than double the 15% that companies like Blackstone currently pay.
Blackstone may have done well on its IPO (whose shares were gobbled up primarily by institutions) because of the news that China’s State Investment Company was investing in the private equity firm, limited to a 10% holding. But, I don’t expect BX to be an extremely successful stock just yet.
After all, it’s only other public competitor Fortress Investment Group LLC (FIG:NYSE) IPO’d in February and is down $10 or 29% in only four months. In fact, it looks like institutions and shareholders alike are selling it even more since Blackstone announced its early IPO three days ago. Since Wednesday, the stock is down 11%.
IPO Stocks: The Third Private-Equity Public Candidate
While FIG is doing poorly, and BX just debuted, Kohlberg Kravis Roberts & Co. L.P., another private equity firm, filed for a $750 million IPO for its investment unit. The company is well known for its buyout of RJR Nabisco in 1989.
Diligent Investor subscribers will remember KKR most famously for robbing us out of an investment in Dollar General (DG:NYSE). The day before I released my issue on the discount retailer, KKR had put in a bid to buy the company. Just today, shareholders approved the buyout.
Who knows… FIG never really had its heyday as a stock after IPOing, and is still losing investment due to the exuberance surrounding Blackstone. It took Blackstone three months to go public after filing for an IPO. By the time KKR goes public, it will be September. Most likely, it’ll be the big kid on the block, and Blackstone will be out of favor and KKR will be in.
The first day of trading on any stock isn’t a surefire indicator of its success.
I’m still watching private equity’s role in the M&A boom and their successes as new stocks. It’s starting to make me worry whether M&A is getting close to the end, indicating a bubble bust.
Regardless, the M&A portion of the Diligent Investor portfolio is still strong, and going forward with what looks like great investments for the long term.
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Ann Sosnowski is a small and mid-cap stock analyst for Taipan Financial News. She is the editor of Diligent Investor, a monthly newsletter that balances conservative and moderately risky investments that pertain to current market trends. She is also the editor of Diligent Investor Micro-Cap Hot Sheet, a monthly newsletter that finds the hottest penny and micro-cap stocks on the market.
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