Wall Street’s most prestigious investment banks are clamoring to get a piece of the next private-equity firm to float shares in a multibillion-dollar initial public offering.
Citigroup, Goldman Sachs and Morgan Stanley collectively raked in nearly $280 million by underwriting the recent much talked about $5 billion private-equity vehicle sponsored by buyout biggie Kohlberg Kravis Roberts.
The IPO, which debuted on Amsterdam’s stock market, was a watershed event that has the potential to revolutionize the private-equity industry, insiders and market watchers said.
“I’d like to say I didn’t notice what they’ve done,” said Hamilton “Tony” James, president of the private equity firm Blackstone Group, at a recent conference. “I expect to see more firms moving in that route.”
Indeed, Apollo Management, founded by former Drexel Burnham Lambert investment banker Leon Black, is planning a road show for its new $2.5 billion public fund this week, sources said.
Citigroup scored another lucrative underwriting job from Apollo, with lesser roles played by J.P. Morgan Chase, Credit Suisse and Goldman Sachs.
Apollo’s IPO also has the chance to reach the $5 billion mark, which would boost underwriting fees, making the business even more lucrative.
Deutsche Bank, which has worked on nearly all of the private-equity takeovers in the past year, has mobilized a large team of investment bankers and others to work on the next private-equity IPO.
Sources said a brand-named buyout firm, thought to be Blackstone, is ready to launch a multibillion-dollar offering as early as this week with the help of Deutsche Bank.
Goldman Sachs – leveraging its experience with KKR – has a team of bankers working with a group of hedge funds to launch public offerings similar in structure to KKR’s, according to several large institutional investors who have pitched on the idea.
Buyout giants including Texas Pacific Group, Thomas H. Lee Partners and The Carlyle Group are all exploring public offerings in Europe, according to sources.
“Private-equity firms are being besieged by investment banks all the time to go public,” Carlyle Group chief David Rubenstein said in March.
The rush comes as KKR’s new vehicle, called KKR Private Equity Investors LP, has dropped nearly 6 percent since its trading debut on May 3.
“It’s unclear how big the market is for these new funds, so it’s important to strike while the iron is hot,” said one investment banker.
It’s unclear whether the new publicly traded private-equity vehicles will generate the double-digit returns that investors in buyout funds are used to.
KKR is also stepping into uncharted territory by dedicating a quarter of its money to “opportunistic investments,” which are generally regarded as hedge fund-like investments.
KKR and other investment firms will collect enormous fees from the new public vehicles.
KKR, for example, will get nearly $14.4 million in management fees per quarter – and that doesn’t include the 20 percent they take off the top of any profits the firm makes on its investments. (KKR has waived the management fee for the first year as the fund ramps up.)
“Perhaps it has some worrying aspects, too,” Blackstone’s James said. “It puts a lot of pressure to get that [money] to work. I hope KKR is disciplined living with that pressure.”
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Hot business
Wall Street giants are lighting up at the prospect of making big bucks setting up IPOs in the private-equity field.