bloggingbuyouts

When The Blackstone Group (NYSE: BX) went public, many observers -- myself included -- were concerned by the total lack of corporate governance checks and balances.

But at the time, the private equity industry was so hot that Blackstone could do no wrong, and no one cared enough to complain. Now that KKR is mulling a plan to list on the New York Stock Exchange, things could be different. The wheels have come off the industry, at least for now, and the arrogant attitude of "We'll tell you what we feel like telling you and you'll like it" may not play so well.

While the Blackstone Group (NYSE: BX) is primarily known as a private equity firm, this actually understates things. In fact, it is a diverse global platform that spans hedge funds, corporate advisory, and real estate investments.

Actually, the real estate segment is getting bigger. This week Blackstone announced that it raised a $4.3 billion real estate fund with the main focus on opportunities in Europe. It's called the Blackstone Real Estate Partners Europe III fund (for whatever reason, these funds can be a mouthful).

Back in 2007 -- at the height of the private equity bubble -- the Chinese sovereign wealth fund, China Investment Corp. (CIC), agreed to invest $3 billion in Blackstone (NYSE: BX). Of course, it was a disaster. In all, the investment lost roughly two-thirds of its value.

Despite all this, it looks like CIC hasn't given up on Blackstone. In fact, according to the Wall Street Journal (subscription required), CIC is prepared to invest $500 million into a Blackstone hedge fund vehicle.

KKR & Co. (NYSE: KFN), which gained famed in the 1980s from the then-record purchase of RJR Nabisco, today reported its first loss in about five years.

As Bloomberg News noted, the New York-based firm posted a $1.2 billion loss for 2008, compared with pretax economic net income of $815 million the previous year. KKR's assets under management plunged 11% to $47.3 billion at the end of March. The closely held company, which last year announced plans to go public, has seen its access to credit dry up as banks tightened standards. Many private equity deals also are buckeling under the weight of excessive leverage.

Regulators have seized BankUnited (NASDAQ: BKUNA), Florida's largest bank, and sold its deposits to a consortium of private equity funds, marking it the largest bank to fail so far this year.

BankUnited's failure will cost the Federal Deposit Insurance Corp. some $4.9 billion, the agency said in a statement. The bank boasted $12.8 billion in assets and $8.6 billion in deposits, according to the FDIC.

In what could be the most watched private equity deal of the year, a consortium of buyout firms led by billionaire investor Wilbur L. Ross has set its sights on BankUnited Financial Corp. (NASDAQ: BKUNA), says the Wall Street Journal (subscription required). The consortium includes Carlyle Group and Blackstone Group (NYSE: BX).

Earlier this year, federal regulators declared that the Florida-based lender was "critically undercapitalized" and demanded that it find a buyer or raise new capital. While regulators have traditionally favored other lenders in sales of banks, if Ross's group is successful, it would not only be one of the largest acquisitions in the financial-services sector made by private equity, but could also signal a shift in the government's attitude toward private-equity buyers of banks.

In the middle of 2007, the private equity industry started to crumble as the credit crunch shocked the U.S. financial system. Since then, it's been particularly tough for deal makers.

Yet, according to a cover article in BusinessWeek, the good days may be here again. In fact, private equity may even help the economy out of its funk.

When the Blackstone Group (NYSE: BX) reported its Q4 results, the company's CEO, Stephen Schwarzman, said that the stock price was "dimwitted." Well, since then, the stock price has surged from $4.87 to $13.44.

What happened? Perhaps it's the fact that the financial system has stabilized.

But, if you take a look at the Q1 results (announced yesterday) for Blackstone, things still look ugly. In fact, on the conference call, President Tony James gave a particularly negative view on the economy. For the most part, it looks like it will take a long while to get things back on track.

Over the past few weeks, we've seen some of the extensive damage done to the mega private equity operators, such as the Blackstone Group LLP (NYSE: BX) and KKR.

Now, according to a report from Reuters, we've got the details on the performance of TPG. And, of course, it's ugly (interestingly enough, TPG's roots are in the distressed investing category).

When the financial shenanigans were uncovered by Satyam's (NYSE: SAY) CEO, B. Ramalinga Raju, he gave a memorable quote: "It was like riding a tiger, not knowing how to get off without being eaten."

And, yes, it's also been pretty rough for many investors in India. Just look at the Blackstone Group LLP (NYSE: BX). In fact, according to Reuters, it looks like the experience has been a nightmare.

Over the past three years, Blackstone has invested about $730 million in India. Unfortunately, much of this was done at the peak of the market. Bear in mind that some of Blackstone's investments have lost 70%+ of their value.

True, India still holds lots of promise. To support its massive population, it's critical that the country find ways to grow and build its infrastructure. And, this means that there must be foreign investment.

Thus, India should rethink its investment regulations and try to loosen things up. If not, the recent losses could scare away investors for some time, ultimately crimping the long-term growth rate.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.

A few years ago, hedge funds saw tremendous opportunity in Asia. But, of course, the industry is now in a funk. In some cases, hedge funds are just trying to survive.

One of the major hedge funds that moved into Asia is GSO Capital Partners LP. The fund, which is an affiliate of the Blackstone Group (NYSE: BX), has about $25 billion in assets.

This week GSO is apparently pulling the plug on its Asia investment desk after only about five months in operation. Simply put, there aren't many bargains in the market.

Keep in mind that GSO focuses on distressed investments, and for the most part, Asia has fared relatively well.
Instead, the wreckage is mostly in the U.S. and Europe.

In a way, this is a negative thing, but there is a silver lining: the "smart money" sees good deals in the US. Ultimately, with more money coming into these investments, it could spark the beginnings of a comeback, especially in the debt markets.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.

Like just about all other private equity firms, Blackstone Group LP (NYSE: BX) reported a horrible Q3, with losses of $502.5 million, or $0.44 per share. However, the firm was fairly optimistic on the overall value of its sprawling portfolio of companies. That is, the writedown was only about 7%.

As a result, some investors were naturally skeptical – and the stock price of Blackstone continued to slide.

Well, this week, the CEO of Blackstone, Stephen Schwarzman, opined on the matter at a Merrill Lynch investor conference. Basically, he was mostly rosy and thinks there are good valuations in the marketplace. But, paradoxically, he said the Blackstone equity portfolio is in good shape.

And, in general, he has a point. If you take a look at the history of private equity, the best investment periods are in tough times (such as the early 1990s and 2001).

Despite having lots of cash – and little debt – shares of Blackstone Group LP (NYSE: BX) have collapsed along with the other financials. Over the past year, the stock price has plunged from $29.38 to a recent low of $6.88.

But the firm's uber dealmaker, Stephen Schwarzman, is getting optimistic. At the Super Return Middle East conference, he gave a presentation that extolled the benefits of the US's ambitious – and expensive – plan to get things back on track. Yes, he thinks it's a good idea for the Feds to become equity holders in some of the top US banks.

So, why is this die-hard capitalist turning into a government supporter? Well, I guess the globalization of finance requires new approaches. In fact, Schwarzman mentioned that it was critical that the recent interventions have involved a variety of governments.

What's more, by having a strong government backstop, institutions will have a comfort level with counterparty risks. In other words, it's a good bet that we'll start seeing some risk taking again. And, for Schwarzman, it should also mean a re-emergence of buyout activity, which has been virtually frozen over the past few months..

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

With depressed markets, it would seem that private equity funds have many opportunities to pickup some good investments at compelling valuations. In fact, this environment seems particularly good for top-tier operators, such as TPG, KKR and Blackstone Group LP (NYSE: BX).

Well, perhaps not.

For example, according to a piece in the Wall Street Journal (subscription required), Blackstone will likely snag a mere $250 million form the California State Teachers' Retirement System (Calstrs) for its next fund. Keep in mind that Calstrs pumped in $1.7 billion in the prior fund from Blackstone.

Is this a sign of a chill? Of course, we won't know for awhile. But, Calstrs is influential. Besides, pensions are probably getting a little edgy as the credit crunch is still in effect.

Although, another concern may be that Blackstone is now a public company. As a result, there is less confidentiality and maybe even more conflicts. For instance, may a private equity fund cash-out of a deal too soon so as to meet the quarterly earnings expectations?

If so, this could be bad for other private equity firms planning to become public, such as Apollo and KKR.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

According to the Blackstone Group LP (NYSE: BX) conference call, it appears that the buyout market is getting somewhat better. For example, in Q2 the firm struck deals like the purchase of the The Weather Channel.

Despite all this, things are still far from good. In fact, Blackstone predicts that the slowdown will continue into 2009 and perhaps 2010. Actually, it looks like the problems are slipping over into Europe and even Asia.

So it should be no surprise that Blackstone's recent financial results are fairly lackluster. The firm posted a net loss of $156.5 million, or $0.60 per share, which compares to a profit of $774.4 million or $0.20 per share in the same period a year ago. Revenues plunged 63% to $353.7 million. Of course, the main reason is that Blackstone hasn't had opportunities to exit investments from its portfolio.

However, Blackstone believes there are juicy investment opportunities. For example, the firm's credit-focused hedge fund, GSO Capital, is investing in distressed debt and even providing financing for Blackstone buyouts. Interestingly enough, the alternative asset management segment saw a 34% spike in revenues to $225.2 for Q2.

Some other good news: Blackstone is still collecting large amounts of assets. So far, the amount is about $113 billion, providing the firm with lots of power to capitalize on things.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.