Blackstone Friday on Wall Street

Shares of the fabled private equity firm closed at $35.06, 14% higher than their initial offering price, recalling the Google IPO glory days

by Justin Bachman

The initial public offering of private equity outfit Blackstone Group (BX) was wildly oversubscribed, but the first day of trading didn't disappoint.

Investors had been asking for anywhere from seven to 10 times the number of shares offered. As a result, many who wanted Blackstone stock didn't get any, and even those who did get to play likely saw smaller allotments than what they wanted.

The stock priced on June 21 at $31, raising $4.1 billion and giving the firm a valuation of $33.6 billion. The public float, equal to a 12.3% interest in the firm, comes after the People's Republic of China bought a $3 billion stake in May. Blackstone shares opened 18% above their IPO price, and finished at $35.06, up 14%, on heavy volume of more than 100 million shares.

Capitalizing on Mystique

"It's Blackstone Day on Wall Street," said Interlake Capital Management's blog The Float, which called the media "overwrought" in its enthusiasm. "Today's action in BX won't tell us much in and of itself, but we'll be watching to see how it behaves over the next few weeks," the Madison (Wis.)-based asset manager said.

The anticipation, to say the least, had been avid on Wall Street, with many pundits citing Google (GOOG) as the last great IPO to grab the public's imagination (see BusinessWeek.com, 3/22/07, "Blackstone Going Public—Its Own Way").

In no small part, that's because Blackstone has cultivated a mystique as the biggest, most audacious and most successful among the private-money "value" creators, and was now letting everyone else have a piece, too. Not everyone was impressed. &The fact that anyone bought into this stock seems totally insane to me," said a poster at Google Finance's Blackstone online discussion board. "The partners at Blackstone are laughing all the way to their private island." The IPO is also a coming-out party of sorts for private equity. The February IPO of hedge fund Fortress Investment Group (FIG) was only a minor (but profitable) taste of the bash to come (see BusinessWeek.com, 2/9/07, "Investors Storm Fortress IPO").

The Competition Is Watching

Others firms, including Blackstone rival Kohlberg Kravis Roberts, are said to be exploring the same route. Even if Washington Democrats succeed in hiking taxes for private equity firms, the group has discovered in Wall Street an enthusiastic source of capital for ever-greater acquisitions. (Not to mention the fact that it's also a chance to cash in on some of the enormous paper wealth the bunch holds.) "Even in the richer-than-sovereign-states world of private equity partners, the multibillion-dollar windfall about to rain down on Chief Executive Officer Stephen Schwarzman & Co. is enough to bring out the green-eyed monster in his fellow deci-centi-millionaires," writes Paul Kedrosky at Infectious Greed.

All of which explains why Blackstone's IPO was viewed as a proxy for the private equity business and the reception for future IPOs among traditional investors. "There will be so much institutional support for this transaction because a poor showing for BX will be seen as an indictment of private equity's future," quantitative analyst Michael Steinhardt wrote on June 22. "The big players have way too much to lose by allowing BX to ruin their momentum. Following the open, there is enough momentum in the market and demand from everyone shut out from participating will keep this rolling for a while."