Blackstone: The First of Many Private Equity IPOs

This Blackstone IPO could be one of the best things to happen to the equity capital markets desk of Wall Street banks in years. You wouldn't necessarily think so from the way that Bloomberg is spinning it, though:

Blackstone Group LP's planned $4.75 billion initial public offering may be a bonanza for founders Stephen Schwarzman and Peter G. Peterson. What it won't be is a windfall for Wall Street, where the underwriters are getting a fraction of the fees they typically command for IPOs.

Er, no. The underwriters on the Blackstone IPO are getting $170 million. That's a lot of money in anyone's book, and it's not a fraction of anything: I challenge you to show me a recent IPO which carried underwriters' fees significantlly higher than that.

What Bloomberg means, of course, is that the fees on the Blackstone deal measured as a percentage, at 3.6%, are much lower than the standard 7% commission charged by the Wall Street cartel banks. But you can't put a percentage in the bank: much better to have 3.6% of a $4 billion offering than 7% of a $200 million offering.

Bloomberg does note that the $170 million is hardly all that Blackstone is going to pay out in fees:

The securities firms are accepting the lower fee because they expect to make a lot more arranging and financing takeovers when New York-based Blackstone invests its $19.6 billion buyout fund, the second-biggest ever raised. Schwarzman's firm paid $571.4 million for those services last year and $248.1 million in the first quarter of 2007 alone, according to estimates by industry consultants at New York-based Freeman & Co.

But what Bloomberg doesn't note is that if when the Blackstone deal is a success, any number of other private-equity IPOs are likely to follow in its footsteps, including the granddaddy of them all, KKR. Charlie Gasparino is reporting today that KKR has now hired Morgan Stanely and Citigroup as underwriters of an IPO he says could come in the next couple of months – and which might well be even larger than Blackstone's.

Take $170 million from Blackstone, then, another $200 million or so from KKR, and a few hundred million more from Apollo and TPG and Carlyle and everybody else who's looking to go public – and soon you're talking real money.