Saturday, June 29, 2013

Carlyle's Choppy IPO Week

The Carlyle Group completed one IPO, at well below the target range, cut another back by two-thirds and cancelled a third due to under-subscription (lack of interest). HD Supply, expected to price at $22-25 per share, went public at $18.  IFR reported:

HD Supply’s deal is the fifth-largest IPO in the US this year. At eight-times net leverage, the company is among the highest-ever leveraged IPOs, compared with 7.5-times and 7.2-times on the recent IPOs of Intelsat and Realogy.
Leverage is the knife that cuts both ways.  Under an easy credit environment it fuels private equity underwriter (PEU) profits.  In a credit crisis it takes down firms.  Credit crises arise when regional markets, major financial institutions or certain types of credit instruments implode. 

The Chinese Shanghai market is under pressure, which may have reduced U.S. investor interest in Carlyle's cancelled IPO.  IFR Asia reported:

Carlyle-backed GDC Technology, a Hong Kong-based maker of digital-cinema servers, postponed its Nasdaq IPO of up to US$80.43m. The deal had been originally set to price on Wednesday.
Carlyle, with more than $176 billion in assets under management across 114 funds and 76 fund of funds vehicles, couldn't inspire investor confidence to subscribe to an $80 million deal.   IFR Asia added:

Carlyle-backed New Century Real Estate Investment Trust has cut the size of its Hong Kong IPO by 66%. It relaunched the deal on Friday, and aims to raise HK$676m (US$87m), versus a fundraising target of up to HK$1.97bn for the original deal.

This was despite offering a 2013 dividend yield of 7.62%–9.14%, achieved through dividend waivers from the controlling shareholders for the first two years.

The deal will be priced at the bottom of the guidance range of HK$3.50–$4.20, according to sources.
Despite these disappointments The Carlyle Group kept their good name, even in the wake of Edward Snowden's trashing Booz Allen Hamilton's reputation along with that of former Carlyle affiliate USIS.  USIS conducted the security investigation on Snowden.

Pensions & Investments noted:

But after 25 years, investors with Carlyle — a legend in the private equity world — remain loyal and unflappable.

How thick is this Carlyle "loyalty"?  CalPERS executives wouldn't say the dumping of their 4% Carlyle Group equity stake was a strategic decision.

The $259.8 billion California Public Employees' Retirement System, Sacramento, sold off 20% of its $1 billion limited partnership interest in Carlyle Partners V LP last year and this month sold its 4% stake in the now-public Carlyle Group. It also has not yet made a commitment to Carlyle's sixth buyout fund, despite being an investor in about 25 Carlyle funds, including four earlier buyout funds. 

Shedding its stake in the Carlyle Group was not a strategic decision, said CalPERS spokesman Joe DeAnda, and does not reflect a “lack of confidence in Carlyle or private equity in general.”

Of course it was a strategic decision.  The curtain remains fully in place.