Carlyle’s Rubenstein Says Many Large LBOs Don’t Succeed

David Rubenstein, co-chief executive officer of Carlyle Group LP (CG), said a leveraged buyout of the size being considered for computer maker Dell Inc. (DELL) is hard to make profitable and the track record of such deals isn’t good.

“Large buyouts might work, but this history of buyouts with $20 billion or more price tags has not been filled with a lot of success,” Rubenstein said today in an interview with Bloomberg Television’s Erik Schatzker at the World Economic Forum in Davos, Switzerland. “You’ve got to work very hard to make those deals work, and good luck to them if they pull it off.”

Dell, the third-biggest maker of personal computers, is getting closer to clinching a leveraged buyout with private- equity firm Silver Lake Management LLC, and Microsoft Corp. is planning to provide part of the funding, people with knowledge of the matter said this week. Dell has a market value of about $22.6 billion.

Carlyle, based in Washington, is the world’s second-biggest manager of alternative assets such as private equity and real estate. The firm, which Rubenstein founded with William Conway and Daniel D’Aniello in 1987, oversees $157 billion in assets.

Blackstone Group LP (BX), the New York-based alternative-asset manager that oversees $205 billion, didn’t consider joining the bid for Dell because the personal-computer business “is a tough road,” Stephen Schwarzman, Blackstone’s CEO, said in a Bloomberg TV interview in Davos yesterday.

Blackstone, Bain

“The financial elements of the deal are very clever,” said Schwarzman. “The issue is going to be how the business actually performs.”

Stephen Pagliuca, a managing director at Bain Capital LLC, declined to say whether his Boston-based private-equity firm looked at Dell or would consider buying similar companies, saying in a Bloomberg TV interview from Davos yesterday that he wouldn’t speak in specifics. Pagliuca said going private would help Dell as it seeks to cut its reliance on PC sales.

“When companies are undergoing some transformation -- slow growth, new products -- it’s really hard to be public,” Pagliuca said. As a public company, “you have to make the earnings every quarter, so becoming private is probably a good thing for Dell.”

Michael Dell, chief executive officer of the Round Rock, Texas-based company he founded, has been using acquisitions to sell more products to businesses as consumers shun PCs in favor of tablets and smartphones, including devices that run Apple Inc. and Google Inc. software that competes with Microsoft Windows.

Biggest LBO

Carlyle’s largest leveraged buyout came in 2006, when it was part of a group that agreed to purchase oil and gas pipeline operator Kinder Morgan Inc. for $22 billion. The deal was Carlyle’s only LBO valued over $20 billion, according to data compiled by Bloomberg.

Carlyle’s stake in the company before its 2011 IPO was worth about $2.4 billion, more than double the firm’s initial investment of $882 million. Kinder Morgan raised $2.9 billion in the offering, at the time the largest U.S. IPO backed by private-equity firms.

To contact the reporter on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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Carlyle Co-CEO Rubenstein Says Many Large LBOs Don’t Succed

Simon Dawson/Bloomberg

David Rubenstein, co-chief executive officer of Carlyle LP, at the World Economic Forum (WEF) in Davos, Switzerland, on Jan. 24, 2013.

David Rubenstein, co-chief executive officer of Carlyle LP, at the World Economic Forum (WEF) in Davos, Switzerland, on Jan. 24, 2013. Photographer: Simon Dawson/Bloomberg