Carlyle Aims for IPO to Boost Buyout-Fund Capital

William Conway, the deal maker who helped build Carlyle Group into the world’s second-biggest private-equity firm, said the company is gearing up for a public share sale to amass permanent capital and contend with the growing challenge of raising money for buyout funds.

“There will be significant advantages to having a lot more capital,” Conway, 61, who oversees the Washington-based firm’s investments, said in an interview with Bloomberg Businessweek. “Investors are reducing commitments to funds and making economic terms much less attractive.”

Carlyle has considered an initial public offering since at least June 2007, when larger rival Blackstone Group LP began trading on the New York Stock Exchange. Plans were put on hold soon after when debt markets froze. Carlyle instead sold a 7.5 percent stake to Mubadala Development Co., an arm of the Abu Dhabi government, in September 2007.

After participating in $16 billion of buyouts this year, more than any other private-equity firm, Carlyle plans to file IPO papers late in 2011, said people with knowledge of the matter. The stock sale may not occur until the following year, said the people, who asked not to be identified because the plans are private.

Private-equity funds are struggling to raise money even as buyouts more than tripled this year to $133 billion from a year earlier, according to data compiled by Bloomberg. Firms attracted $71 billion from investors through the third quarter and are set to have their worst fundraising year since at least 2004, data from researcher PitchBook Data Inc. in Seattle show. The wealthy individuals and institutions that traditionally have backed private equity are increasingly reluctant to commit fresh capital after the financial crisis.

Deals, Diversification

Carlyle, which was founded in 1987 by Conway, David Rubenstein and Daniel D’Aniello with $5 million in seed capital, would use proceeds from the IPO to invest in its funds and continue to expand beyond corporate buyouts.

The firm today agreed to buy a 55 percent stake in Claren Road Asset Management, a $4.5 billion long-short hedge fund focused on liquid credit assets. Citigroup Inc., which invested in Claren Road in 2006, and Goldman Sachs Group Inc.’s Petershill Fund, which bought a minority stake in 2008, will sell their holdings, Carlyle said in a statement.

Claren Road founders Brian Riano, John Eckerson, Sean Fahey and Albert Marino will continue to manage the day-to-day operations and make all investment decisions.

Petrick, Arpey

The firm in March hired Mitch Petrick, Morgan Stanley’s former sales and trading chief, to build out its credit business. Michael Arpey, former head of Credit Suisse Group AG’s customized funds business, joined Carlyle in November to lead fund formation and development of new products.

Carlyle, which oversees $98 billion, appointed both to the firm’s special committee, which oversees operations in 19 countries and 78 funds. The firm also hired Rodney Cohen from Pegasus Capital Advisors to lead a fund it hopes will raise $1 billion to buy small companies.

Stock as Currency

When Blackstone went public, it said having stock would give it a currency to buy companies, recruit and retain employees and enable founders Stephen Schwarzman and Peter G. Peterson to convert their ownership stakes into shares and cash. The New York-based company has fallen 55 percent from the $31 IPO price.

KKR & Co., which also weighed going public during the IPO boom, later merged with a European-listed affiliate and moved the stock to New York. It has gained 22 percent since the switch to the New York Stock Exchange in July.

Conway, in a Dec. 3 interview, said he expects Carlyle to add at least one yuan-denominated fund to the pair it’s already marketing, one of which is a joint venture. Petrick’s Carlyle Global Credit Alternatives group is aiming to start two debt funds.

Conway decided at the start of the year to ramp up buyouts after an almost two-year stretch when Carlyle was largely absent from deal making.

“At the beginning of 2010, I became more bullish on the economy than many others, based on data from portfolio companies that showed improvement,” he said. “Another factor was the Federal Reserve -- it pumped a massive amount of liquidity into the system and it worked.”

Conway’s Marching Orders

By year-end, the firm expects to have put $10 billion in equity into new investments worldwide. Its clients, who received $1 billion in cash distributions in 2009, have already seen payouts increase to $5.7 billion 2010. That’s more than Blackstone and KKR combined.

At the beginning of each year, Conway writes a memo to all Carlyle employees. In addition to laying out his views on the investment environment, this year’s seven-page letter responded to investor concerns that Carlyle had “too much unfunded capital” at its disposal by explaining that the decision not to put capital to work earlier put it in a better position than its competitors to capitalize on current opportunities.

He directed the firm’s 400 investment professionals to use the economic uncertainty to their advantage and exceed the $5.2 billion they spent in 2009.

Vitamins, Fiber Optics

Carlyle has announced 33 deals this year, compared with one last year. Four deals are valued at more than $2 billion. The firm beat out Blackstone and TPG Inc. to buy NBTY Inc., the maker of Nature’s Bounty, MET-Rx and Solgar nutritional supplements, for $3.8 billion in July.

The deal was Carlyle’s largest since its $6.3 billion acquisition of nursing-home operator Manor Care Inc. in 2007. Carlyle in October agreed to buy CommScope Inc., a manufacturer of fiber-optic networks, for $3.9 billion.

“We worked on NBTY and CommScope for a couple of years,” Conway said. “The hard work started a long time before the process got underway. In fact, you were behind if you started due diligence when you got the book from Goldman Sachs.”