Private equity firm Carlyle Group LP proved a tough sell with investors on Wednesday, raising $671 million in an IPO that was slightly below a pricing range already seen as modest.
Carlyle, which has taken many of its portfolio companies public since its founding in 1987, marketed the original range as conservative and having to drop it further made for a stark contrast with the excitement that surrounded the Blackstone Group LP IPO five years ago.
But the performance of alternative-asset management stocks has been lackluster since that IPO.
Blackstone's shares have tumbled 56 percent since its 2007 IPO, while Apollo Global Management LLC has declined 32 percent. Oaktree Capital Group LLC, which went public in April, has fallen 6 percent.
Investors often complain that the balance sheets of these firms are too hard to value and that their earnings can rely excessively on carried interest, their cut of their funds' investment profits - which is often both cyclical and volatile.
Carlyle is selling 30.5 million units at $22 each, the company said in a statement, adding that it granted underwriters a 30-day option to purchase up to 4.575 million additional common units at the IPO price less underwriting discounts. The original price range was $23 to $25 per unit.
Units of Carlyle, which counts movie theater operator AMC Entertainment, donut maker Dunkin' Brands and car rental company Hertz among its investments, are set to begin trading on the NASDAQ Global Select Market on Thursday under the 'CG' symbol.
"Private equity firms have not been performing that well as they're getting pressure from all sides," said Reena Aggarwal, a professor of business administration and finance at Georgetown University's McDonough School of Business in Washington. "Fundraising has become somewhat of an issue. They are getting pressure on the fee structure from limited partners."
Carlyle will issue new equity and its owners will not pocket any cash from the IPO directly. Instead, the proceeds will be used to pay down debt and finance operational needs, acquisitions and new fund commitments.
The IPO values Carlyle at about $6.7 billion, less than half the market capitalization of Blackstone, even though their assets under management are similar in size.
Even before the lower price range, the KKR & Co LP would have been valued at about twice as much as Carlyle, based on the companies' 2011 distributable earnings - cash available to pay dividends to unit holders. On the same basis, Blackstone would have been over 2.5 times more expensive than Carlyle.
Carlyle, which has about $147 billion in assets under management, returned a record $19 billion to its fund investors in 2011 and reported a 152 percent year-on-year jump in distributable earnings, as sales of several assets in its funds boosted profits.
Carlyle founders William Conway, Daniel D'Aniello and David Rubenstein have recruited 21 banks to help market the IPO to investors. J.P. Morgan Chase & Co, Citigroup Inc, Credit Suisse Group AG and Bank of America Merrill Lynch are among the underwriters of the IPO.
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