Carlyle Group is out to replicate the performance of companies it has taken public with its own share sale this week. Doing so would make it the only U.S. buyout firm trading above its initial offering price.
The Washington-based private equity manager may price its IPO below its proposed range, according to two people with knowledge of the matter. The firm is planning to sell shares for between $22 and $23 a share, after seeking $23 to $25, said the people, who declined to be identified because the discussions are private.
Carlyle has enough orders to cover the sale at $23 and may choose to price lower to boost the likelihood of a first-day gain for investors, the people said. The midpoint of the earlier range valued Carlyle at a 62% discount to Blackstone Group, data compiled by Bloomberg show. The IPO price is designed to provide the maximum potential return for investors, co-founder David Rubenstein told prospective shareholders at a presentation in New York last week.
“It’s a little bit of a harder sell than in the past,” said Tim Loughran, a finance professor at the University of Notre Dame’s Mendoza College of Business in Notre Dame, Ind. “If private equity had been doing so well, they wouldn’t have to be doing this discount to get people interested.”
Carlyle has touted its record of taking companies public in private discussions with investors, according to a person familiar with the meetings. Seven of the 11 U.S. IPOs the firm led for portfolio companies since 2010 are trading above their initial prices.
By offering a discount, Carlyle is looking to avoid the fate of Blackstone and Apollo Global Management, whose stocks have tumbled since share sales in 2007 and 2011, and more recently, of Oaktree Capital Group, which has declined 5.9% from its debut last month after the distressed-debt investment firm slashed the size of the sale.
The midpoint of Carlyle’s proposed price range of $23 to $25 a share valued the firm at about 8.3 times last year’s distributable earnings of $881.6 million, adjusted for the effects of the IPO and the acquisition of AlpInvest Partners, data compiled by Bloomberg show. Blackstone trades at 22 times its 2011 distributable earnings of $696.7 million. The earnings measure largely reflects profits made from selling companies owned through buyout funds.
Knowing how to gauge market sentiment may help Carlyle pull off the sale, said Richard Marin, head of mortgage restructuring firm Ironwood Global and the former chief executive officer of Bear Stearns Asset Management.
“They should know better than most what it takes to interest investors,” Mr. Marin said. “Whether or not they know how to follow through on it and make the stock perform is a different question.”
Carlyle-backed companies such as Dunkin’ Brands Group Inc. and Nielsen Holdings NV have gained 74% and 27%, respectively, since their IPOs and rose 38% and 13% in the 30 days after going public, according to data compiled by Bloomberg. The 11 companies that Carlyle has taken public in the U.S. since 2010 gained an average of 4.5 percentage points more than the Standard & Poor’s 500 Index in the first 30 days after their debuts, Bloomberg data show.
Carlyle is making about 10% of itself public in the deal. Rubenstein and co-founders Bill Conway and Daniel D’Aniello, who started the firm 25 years ago, may have less incentive to price the offering richly because they’re not selling any of their personal holdings. Each will own about 15% of the firm following the offering, or about 47 million shares.
Carlyle plans to list its own shares on the Nasdaq Stock Market under the symbol CG. J.P. Morgan Chase, Citigroup and Credit Suisse Group are leading the offering, whose proceeds will go toward paying off debt.