Blackstone Group’s IPO Harvard Case Solution & Analysis

Blackstone Group’s IPO Case Study Solution

Introduction:

This case study is mainly dealing with an American multinational group named as Blackstone which is famous for investment banking. Since its inception, it is aNew York-based financial services company and private equity firm. The company is growing very rapidly from the early years and it has received specialization in many businesses such as: providing credit, providing advisory services related to finance, private equity and strategies for investment related to thehedging of funds.

The company has seen growth in its private equity business for years and it is considered as one of the largest investors for the transaction of leveraged buyout, whereas the acquisition of acommercial real estate by the company’s existing real estate business for expanding its product line.

Moreover, thecompany is planning to expand its private equity business by diversifying its investments through initial public offering by planning towards going public on the22ndMarch 2007.

Options:

Blackstone Company needs to evaluate all the available options before entering into capital markets through trading of the shares and deciding to go public without raising itscapital through public offerings directly.The company can access to the capital market through limited partnerships and master limited partnership structure.

Pros of Limited partnership:

The company has an opportunity to attract the young management to invest in the company by limiting its liability only up to a number of their investments. This will lead to the similar nature of the culture company is currently dealing with or without significant change in interests of the management and governance. It also provides voting rights to the stakeholders.

Moreover, it will create alignment with the interests of professionals by looking at their analysis and investment decisions. This will also lead to the tax shield for the limited partners because they won’t be paying double taxation on the loss of the income of the firm. Furthermore, limited partners may get benefits from the closed deals which took place in the past.

Cons of Limited Partnership:

However, thecompany may face the drawbacks of limited partnership option such asthe pressures to increase their fees for improving their returns. Moreover, the additional reporting may alter the fees of the management which may eventually result in the loss of management control over its exchange of stocks and the available capital funds.

This will lead to approaching the situation by using the different strategies for risk management and maximization of its returns and it will lead to the conflict of interest too.

Pros of master-limited partnership:

The master-limited partnership provides the investors with a right and returnto the company in the form of units rather than the stock and it is run by the existing team of management. It provides a great control of the management over its structure and the decision making. This works as partnership business which is governed by the partners. The profits are not shared with the outsiders rather theyare distributed among the partners according to their partnership deed.

 Cons of master-limited partnership:

The master-limited partnership structure has the drawback that it does not provide voting rights to its unitholders for the election of directors like general partners. The partnership agreement contains the fixed amount of shareholding and appropriation of profits which is adrawback because they have to accept it at any cost regardless of the profits company is generating andtheload of work on them.

Liability of the unit holders is unlimited because they will bear the expenses from their own pockets to meet the obligations of the business and it makes them jointly and individually liable.

Pros of going public:

If the company takes the decision of being public, it will benefit the company in maintaining its funds with less expensive financing because thecost of equity for public funding is relatively lower than private funding. The investment returns of the company were relatively better which provides an attractive option for the public to invest in company’s shares.

Blackstone Group’s IPO Harvard Case Solution & Analysis

 

It will help the company in making the bond and communication more strong by connecting the employees and firms.

This will provide the company an opportunity to attract its employees by providing them shareholding in company in the form of carried interest along with fixed monthly salaries which will lead to attract its employees by long-term growth of the company’s shares along with the capital gains for the employees as well if the performance of the company gets better.....................

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