My readers (thank you for being there) already know that Blackstone is a private equity firm that I like and I’ve been following lately (See China and Blackstone: bad news for capital markets, good news for private equity).
I’ve always visualised private equity firms as a way to avoid the market’s constraints, and the firm’s constraints also, to be able to make longer term moves in order to ensure efficiency and the emergence of sunk benefits inside the firm (See Defensive strategies from private equity).
The funny thing is to see how a private equity firm just decides to go public. In any case, makes a lot of sense to me. At least the market recovers part of what has been taken off it. ($4.13 billion are a nice prodigal son to welcome home)
And Blackstone decided to do just that and went public last Friday.
Graph source Yahoo Finance
This graph is from IPO-day. If you read the news, it was a success, as the PR guys and gals are saying: biggest US IPO in the last four years, executives going mega-rich and all that stuff.
And I concur that it was a success. But not a wild success: a mild one.
In the picture, the trade for Friday: the share ended up at $35.06, far higher than the initial price of $31, a 13% more… of course it went up, it was already over-subscribed. But, take a second look, it didn’t go that far up. The Fortress Investment Group went 33% up in its IPO last February, and it wasn’t as sexy or hyped as Blackstone.
Things are changing. As I have also written before, cheap money is going scarce. (see Rates keep raising: is this the end of cheap money?) And maybe we’ve reached the peak. Bond’s yields are going up too.
Let’s take a peek at the market:
Graph source Yahoo Finance
The graph is the Dow Jones Industrial Average Index over the last year. The two curves below are the Relative Strength (RSI) and the Money Flow (MFI).
The RSI measures the internal strength, the momentum, and it’s indicative when the security reaches a high and the signal fails to reach one. It’s not as low as it was in March’s crisis, but it’s in the second lowest for the last year.
The MFI also measures momentum but takes into account volume as well as price. In this case it has shown repeatedly how the market was loosing strength, thus slowing the slope, so there is a divergence there. In any case it would be worrying if this signal went below 20%, which has not happened.
But my point is that things are not as bright as they were before. And probably things will be harder from now on. If these guys were discounting new highs, they could have waited for a better moment. But they decided to go in now. There must be a reason for that. Behind the curve probably we will find a bumpier road, not the accustomed highway they’ve enjoyed until now.
And, just another thought, another interpretation from a different perspective: is it sustainable that private equity firms enjoy a 15% tax rate while public companies are at 35%? Doesn’t seem quite fair. There’s a hard debate on this and proposed changes on legislation on the way… is Blackstone equity already discounting the conclusion of the debate? (or at least the uncertainty)
Last food for thought today: KKR has also announced it will go public. (yummy, yummy)