blackstone IPO

2131 Words9 Pages
Q1. What are the built-in tensions with a public private equity firm? How does Blackstone 's structure attempt to reconcile them?
1. Transparency (disclosures of financial statements)
The reason why investors are willing to let the required rate of return decrease is the lower concerns about asymmetric information due to the disclosures of financial statements. In the past, in order not to be subjected to Investment Company Act of 1940, Blackstone once analyzed its operations and concluded that it was not an investment company. The SEC subsequently reviewed the conclusions and did not object. However, if it goes public, it will face problems such as its financial reporting, which should compliant with the GAAP. Therefore, Blackstone
…show more content…
As our point of view, though IPO will lead to short-term ups and downs of stock price, it will eventually reflect the real values of the company in the long run, consisting the stock price with its long-term performance.
4. Short-term losses from the change of compensation package after going public
With the shares vesting in the future, Blackstone expected to face deferred cost approximated $13 billion. It may record significant net losses for a number of years following without paying any interests or dividends hereafter. As a result, Blackstone developed a metric called “economic net income,” which excluded the impact of income taxes, noncash charges related to the vesting of equity-based compensation, and amortization of intangible assets. By using the economic net income metric, the Blackstone‘s executive team argued that this metric was justified, as the future noncash charges reflected an extraordinary situation, incurred only because of the one-time event of the firm’s listing. Moreover, the stream of income against which these expenses would be offset was uncertain but highly likely to be more than enough to cover these costs. Furthermore, the management team also thought that this $13 billion expenses was based on the extreme assumption that all the employees would not leave their jobs in the coming eight years. If they left the firm before their vesting
Get Access