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Back in Black: Blackstone's Surge Highlights Private Equity's Rebirth

Here's what "The Bonfire of the Vanities" author and Wall Street gadfly Tom Wolfe said when private equity firm Blackstone Group (BX) went public in June 2007 in a more than $4 billion IPO:

We may be witnessing the end of capitalism as we know it.
He was half right. The financial universe may have imploded, but the masters of the universe live on. Just witness Blackstone's blockbuster first quarter, with the investment giant reporting that profits rose 58 pecent to $558 million. The company's shares, though still well south of their $36.55 opening nearly four years ago, are up roughly 29 percent over the last 12 months. Blackstone's assets under management, including the funds it has to invest in leveraged buyouts, surged 43 percent, to $150 billion.

Before you know it, Blackstone chief Stephen Schwarzman will be throwing himself another birthday bacchanal. But while the firm has performed especially well, notching big IPOs including BankUnited (BKU) and Nielsen Holdings (NLSN), its rebound underscores the entire PE sector's strong recovery.

Here comes the sun
Apollo Global Management (APO), another large buyout shop that took a beating during the financial crisis, went public earlier this month in a $565 million deal. Other PE firms are also considering IPOs, including major players such as Carlyle Group and OakTree Capital, to capitalize on the bullish stock market and resurgent credit markets.

That allows buyout firms to take their portfolio companies public, generating profits that they can use to fund more acquisitions. We've seen a steady stream of large PE-backed offerings in recent months. Along with BankUnited and Nielsen, those include a $2.9 billion IPO in February by energy storage company Kinder Morgan (KMP) and a $3.7 billion deal in March by hospital operator HCA Holdings (HCA). Other large IPOs are in the pipeline.

Until early last year, firms like Blackstone and Apollo were still mostly focusing on refinancing their portfolio companies, whose values had plunged during the meltdown. But in more recent months, PE firms have increasingly shifted their attention to taking these companies public and making new investments, with acquisitions in the middle-market especially strong. As one expert told Reuters:

"It's a pretty opportune time to come public," said Michael Kim, an analyst who covers asset managers at investment bank Sandler O'Neill & Partners LP.

"The private equity industry is cyclical and certainly what we've seen over the last six months has been a pretty nice recovery across almost any metric."

What could cut the new party short? A double-dip recession, for one, since that would hurt credit and equity markets, making it hard to fund buyouts and take companies public. For now, that looks unlikely. The U.S. economy is slowly crawling out of the sludge. On Wall Street, for better and for worse, the bonfires are burning again. Now if we could just spark the rest of the economy.

Image from Wikimedia Commons, CC2.0, courtesy of the World Economic Forum

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