Private equity firm Blackstone Group LP reported higher quarterly earnings on Thursday, topping Wall Street expectations, and said it was sitting on its biggest cash pile ever, with $29 billion to deploy.
The credit crunch and lack of financing have meant private equity firms have struggled to spend money on leveraged buyouts over the past year, and thus have large amounts of cash, known as dry powder, to invest.
We now have $29 billion in dry powder, the largest amount of available capital in the firm's history, and it couldn't come at a better time, Chief Operating Officer Tony James said on a conference call.
Times of market turmoil and dislocation are when Blackstone can find its most profitable investments, he said.
Blackstone, in a consortium that included rival private equity firm Carlyle Group, struck a deal in May to buy troubled Florida lender BankUnited Financial Corp.
James said there are about three banking transactions he is looking hard at. The firm, along with TPG Capital LP TPG.UL and Carlyle, has been in talks to buy Bank of America Corp's (BAC.N) First Republic, two sources previously told Reuters.
James added that recently proposed guidelines by U.S. bank regulator the FDIC would kill it for private equity investments into banks. But, those guidelines are not expected to be as severe as first proposed, meaning there will be opportunity to put some money to work, he said.
Blackstone is hopefully getting close to some very interesting deals that should be announced in the second half of the year, he said in a separate call for analysts, although he did not specify the industries.
Some of the companies we are looking at include distressed assets which have significant debt in place, Blackstone's Chief Executive Officer Stephen Schwarzman said later.
Blackstone's second-quarter earnings before income taxes, noncash charges for vesting equity-based compensation, and amortization of intangible assets -- a measure it calls economic net income (ENI) -- were $173 million, up from $100 million a year earlier.
On an after-tax basis, ENI was 16 cents a share, compared with 15 cents a year earlier. Analysts polled by Reuters had expected, on average, 9 cents per share.
Earnings were partly driven by positive investment performance from Blackstone's fund-of-funds business and its credit funds, said James.
Another boost was Blackstone writing up the value of its private equity portfolio by 3 percent for the quarter, meaning its value is essentially flat for the year so far.
We're pleased how solid our portfolio is, given the buffeting it has taken from the economic downturn, said James. However, Blackstone wrote down the value of its real estate portfolio by 19 percent.
One problem private equity firms have faced during the market turmoil is the inability to exit investments through initial public offerings or by selling to companies in the same industry as the target -- known as strategic buyers.
James said should the markets hold up and continue their present trend, there will probably be some IPOs from Blackstone's portfolio in the next 12 months, although he stressed he wasn't promising a lot of exits.
There are a couple of companies that are definitely candidates, said James. There has also been a rebound in the interest of strategic buyers, he added.
Rival firms are also looking at exits. Kohlberg Kravis Roberts & Co KKR.UL has plans for an IPO for discount retailer Dollar General, sources previously have told Reuters, and a KKR-backed company, Avago Technologies Ltd, started trading on Thursday.
Blackstone shares closed down 96 cents, or 6.4 percent, at $14 on the New York Stock Exchange. Through Wednesday the shares had climbed 30 percent this week, partly on optimism that the company would top earnings expectations.
The company is valued at about $17 billion at current levels. It went public in June 2007 at $31 a share.
Blackstone prefers to focus on the measure ENI because of the big payouts associated with its more than $4 billion initial public offering. On a GAAP basis, its net loss was $164 million, wider than the $157 million loss a year earlier.
The company said it would pay its regular quarterly distribution of 30 cents a share.
(Reporting by Megan Davies; editing by John Wallace, Gerald E. McCormick and Bernard Orr)