Despite the credit crunch and recession, private equity powerhouse, the Blackstone Group (NYSE: BX), was still able to post a profit of $180.8 million in Q2. How was this possible? It certainly helped that the equities markets surged. The upshot was that the Blackstone company portfolio had an average mark-up of 3%.
Yet, the fact remains that the buyout business continues to lag. While valuations are attractive, the problem is that banks continue to be stringy with funding. Unfortunately, without leverage, it's pretty tough to generate strong returns.
But there are some positives. For example, about two-thirds of the Blackstone portfolio has companies with EBITDA (earnings before interest, taxes, depreciation & amortization) that is flat or above last year's levels. Next, the firm sees some opportunities in distressed deals, such as banks. Also, Blackstone has about $14 billion in dry-powder for new deals. Oh, and there are signs that strategic M&A is improving as well as IPOs, as seen with yesterday's successful offering of Avago (NASDAQ: AVGO). The deal was a nice boost for KKR and Silver Lake Partners.
However, perhaps the most attractive source of growth is Blackstone's advisory business. No doubt, there are likely to be many restructurings over the next few years, as debt comes due. This is indeed something that Blackstone knows very well. Keep in mind that it was during the early 1990s that Blackstone focused on this part of the business, helping to build a global private equity empire.
Tom Taulli is the author of various books, including The IPO Primer and The Complete M&A Handbook
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