Private equity firm Carlyle Group LP, Washington's premier investment bank, will start trading publicly on Thursday at what analysts are calling a discounted initial price of $22 a share, the company announced late Wednesday evening after the markets closed.
The price will value Carlyle just under $7 billion, a less ambitious initial valuation than that sought by competitors such as Blackstone Group, Kohlberg Kravis Roberts (KKR), Fortress Investment Group, and Apollo Global Management - all of which have seen their share prices fall far after going public.
The company said in its statement late Wednesday it intended to use the funds raised "to repay indebtedness and for general corporate purposes, including general operational needs, growth initiatives, acquisitions and strategic investments and to fund capital commitments to, and other investments in and alongside of, its funds."
The company had earlier targeted a stock sale priced as high as $25, but analysts said the private equity firm discounted the initial price of the 30.5 million shares in an effort to avoid the recent stock dive that industry competitors had experienced.
"The past performance of Apollo, KKR, and Blackstone has basically sealed the fate of Carlyle's stock," said Scott Sweet, senior managing partner at IPO Boutique. "These have not been good investments."
Carlyle is one of last of the major private buyout firms to make a public stock offering. Its founders and top officers include David Rubenstein, a onetime adviser to President Jimmy Carter, William E. Conway and Daniel D'Aniello. Founded in 1987, the company had nearly $147 billion in assets under management at the end of 2011.
Despite the firm's pedigree, history has frowned upon the private equity market as of late.
Doug Kelly, industry analyst at IBISWorld, said investors often have difficulty determining the correct stock price for private equity firms.
"The marketplace is having trouble valuing these firms, putting a price on them," Mr. Kelly said. "Investors are just having trouble figuring out what these investments are worth. They're just pricing them too high."
Blackstone started out around $35 a share, but has since dropped to $13.25. Apollo went public last year at $18 a share, but has since dipped to $12.65, and KKR broke the $18 mark last year, before tumbling to $13.58.
But Fortress' stock, by far, has performed the worst among these companies. It began trading around $30, however, it is now down to $3.63.
"Since the day Carlyle filed, it was a sigh of, 'Not again,' " Mr. Sweet said. "We've already seen KKR, Apollo, and Blackstone do nothing. Not again."
Josef Schuster, founder and owner of IPOX Schuster, agreed that Carlyle's stock is a tricky investment to evaluate.
"We are very cautious of these type of deals," he said. "All of these companies have substantially underperformed in the market since going public. So the odds for this company to do well at the onset are not very high."
This pressure has forced Carlyle to approach its IPO with a new pricing strategy. Mr. Sweet said Carlyle will have "no choice" but to discount the price, because investors are so wary of the private equity market.
"The real question: 'Is there demand at any price?'" he said.
Mr. Schuster said that discounting the price of the IPO proves there is concern about how well the company will perform, and admitted he could see it falling below the IPO price.
"Finance and private equity - I don't really believe it is a growth industry," Mr. Schuster said.
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