Capitalizing on the private-equity wave, The Blackstone Group saw its shares soar in their public debut on Friday, even though the broader market skidded lower.
After the shares were priced at $31 each on late Thursday, Blackstone (NYSE: BX) opened trading at $36.45, up $5.45 per share, or 17.6% from its offering price, on the New York Stock Exchange.
The shares remained strong for the rest of the day, and held most of those gains, ending the day at $35.06, up $4.06, or 13.1% each, according to preliminary figures. The shares actually traded as high as $38 during the day.
But the broader market didn't fare so well. Investor concerns over rising oil prices and increased junk bond yields stoked investor fears about the future direction of interest rates, and the health of the U.S. housing market.
The Dow Jones Industrial Average, down 140 points at midday, suffered additional losses later in the afternoon, and ended Friday down more than 185 points, or nearly 1.4%.
It was an overall tough week for investors: The Dow dropped 2.1%, while the Standard & Poor's 500 Index shed 2% and the Nasdaq 1.4%.
The IPO of the New York-based Blackstone had been closely watched by investors because of the surging boom in private equity deals.
Blackstone was founded in 1985 by Stephen Schwarzman, currently the CEO, and Peter Peterson, the current chairman, and a man who was the U.S. Commerce Secretary under President Richard M. Nixon.
The IPO raised $4.1 billion, making it one of the largest stock offerings in U.S. history. However, it's dwarfed by some of the recent overseas IPOs, including the granddaddy of them all: The Industrial & Commercial Bank of China, Mainland China's largest bank.
ICBC raised $19.l billion in its IPO last October, although that total rose to nearly $22 billion when all of the so-called "green shoe" options were exercised to meet the huge demand. The ICBC deal eclipsed the previous record of $18.4 billion, raised by Japan's NTT DoCoMo Inc. in 1998.
Indeed, in a bit of trivia that would very likely stun most U.S. investors, of the top 10 IPOs of all time, only one is a U.S. company: The $10.62 billion IPO of AT&T Wireless in April 2000, which only ranks eighth on the list.
Japan has three of the Top 10 deals, China two, and Italy, Russia, Australia, Germany and the United States have one each.
Even so, the Blackstone deal is the biggest in the United States in five years, and may pave the way for some other, similar companies to test the IPO market. Two candidates: Blackstone buyout-business rivals The Carlyle Group, and Kohlberg Kravis & Roberts, the winner of the bidding for RJR-Nabisco, the dizzying deal that spawned the bestseller, Barbarians at the Gate.
Blackstone was the focus of some controversy last month after it was revealed that a state-run investment arm of the Chinese government would take a $3 billion stake in Blackstone.
The State Foreign Exchange Investment Co., a soon-to-be established unit of the government of Mainland China, said the investment would take the form of non-voting common units. China said in March that it was setting up an investment company to help it generate higher investment returns on its estimated $1.2 trillion in foreign reserve holdings.
Blackstone announced its IPO plans in March, has nearly $80 billion under management, and has been part of some of the largest-ever deals in the private-equity market. One of the largest: The $23 billion purchase of Equity Office Properties Trust, the largest U.S. owner of office buildings and a company operated by noted value investor Sam Zell.
Fundraising by private-equity funds slowed substantially in the fourth quarter of 2006, but still broke records for the year, according to a report by Thomson Financial and the National Venture Capital Association (NVCA).
In that 2006 final quarter, 37 venture capital funds raised a total of $2.83 billion – and 39 Buyout and Mezzanine funds raised $17.83 billion. Despite this slower pace, venture capital saw the highest fundraising year since 2001, with 200 funds raising $28.5 billion. Buyout and Mezzanine funds recorded the highest year ever with 138 funds raising $102.9 billion.
"The deceleration of fundraising in private equity this quarter was expected and welcomed for a number of reasons," said Mark Heesen, president of the National Venture Capital Association. "On the venture side, we are coming to the end of the current fundraising cycle as most firms are now turning their attention to investing the funds raised in the last three years. Additionally, the venture industry is extremely wary of bringing too much liquidity into the asset class. We want to keep fund sizes reasonable so dollars can be deployed smartly. The discipline exercised this year by the venture firms has been commendable. We hope the same holds true on the buyout side."
In recent months, it has almost seemed like deals were being announced every day. That's clearly had an impact on the upward rush of stock prices, and has also prompted large numbers of individual investors to seek ways to capitalize on the buyout boom.