The Carlyle Group: IPO of a Publicly Traded Private Equity Firm Case Solution & Answer

The Carlyle Group: IPO of a Publicly Traded Private Equity Firm Case Solution 


Daniel D’Aniello, William Conway, and David Rubinstein who are the three co-founders of the Carlyle Group, which is a private equity firm, in September 2011, they have filed for the initial public offering (IPO) of their company(Marston, 2013). The firm has become one of the biggest and most diversified investment firms around the globe since the last 25 years of its operations. From 2007, five firms: Fortress Investment Group, Blackstone Group, Kohlberg Kravis, Roberts & Company (KKR), Apollo Global Management, and the latest, Oaktree Capital Management went public, all of these firms except KKR, are being traded at lower prices than their IPO prices. The reason mainly is the impact of the 2008 recession on the financial market around the world.

In this case, the founders have decided to offer 10% shares of the company for their IPO. For this, they could not float their shares to get public. Based on prices offered by other publicly traded firms, the price that they have decided to offer per share is in between the range of $23 to $25. We must suggest now based on our evaluation that is this price range offered would be able to catch potential investors or does it need to be change.

Problem Statement

The problem statement reflected in this case is that, is the company worth the range that they are offering per share in their IPO?, if not then what price per share it must offer to catch potential investor and raise the company funds. All the solutions must be based on the analysis done on the valuation of the company. We must provide various recommendation for the company that will make the company appealing for different investors.

Answer of Question 1

There are many reasons behind the decision that leads any company to go public. For instance, if a company want to raise its funds, it can do so by the issuance of its share to the public, this will provide them sufficient capital which could be used by the company for various purposes like to pay its long-term debts, or to use it for its capital expenditure purposes.Not just to raise sufficient funds but the reason for this IPO could be to catch various customers as their IPO could create awareness to the people about their firm, leading the company to increase their market share to a greater extent.

Initial public offering could also help the owners if they want to exit from the company and they could even get a good price for it as well. But they have will do it at a cost of backing off from their rights in the decision making of the company and they even could not be engaged in any of the operation in the company. Also, to make the company public and do initial public offerings the company needs to match certain requirements from the stock exchange like to provide full details and exposure to the company, otherwise they will not be allowed to do so. There also exists the risk that the initial public offerings might not be fully subscribed.

The five firms that previously went public also evaluated all the aspects like the pros and the cons before going public, since the pros for them to go public crossed the cons of being so, the finally decided to go public. The Carlyle group also did the same and requested for `initial public offerings in September 2011.

Answer of Question 2

There are some issues for the firms to go public which includes that the investors were not appealed by the IPO because the management of the company was legally bound to act and behave within the nice interest of the shareholders and these responsibilities were less sincerely defined in the publicly traded private equity firms.The primary components of earnings of the equity firms were management fee and performance fee (residual proportion of profits of the liquidated investments), this made the valuation complicated because of lacking in consensus at the definition and proportion earnings and what the shareholder will receive.

There may be continually a risk that the initial public offering is probably a go out strategy by the owners as the shares are highly priced, consequently, exiting is viable for the proprietors. Following the go out, the control of the enterprise changes and there may be an opportunity cost that the new management will now not be effective as compared to the preceding management, and this would result in a decline in share prices.The equity firm deals in diverse volatile derivatives, which would not be hedged consequently, the employer should maximize the returns in favorable actions and if adverse moves occur then they might liquidate the whole firms.

Answer of Question 3

Strength of Carlyle Group

Diversified Investments

The company is involved in the investment around four segments namely, Corporate Private Equity (CPE), Real Assets (RA), Global Market Strategies (GMS), and Fund of Funds (FoF). There are about 89 number of funds that the company possess and around 63 number of funds in the four segment mentioned above that makes the operations of the company appealing for the potential investors. The company has a diversified pool of investments in about six continents around the growing economies of the world.

Strong Fundraising

The company is one of the best fundraiser and ranked as number three out of total fundraising because of having good record. The firms is very loyal towards the partners with maintain its quality of work. The tasks of the firm are deal professionally from its efficient employees. It’s well appreciated from experts because of its sup fundraising techniques. Besides that the firm also has a comparative advantage of having good prolonged relations with 9 out of 29 sovereign wealth funds.

Stable Earnings

The firm is ranked as one of the top buyout funds managers because it has consistent records of earnings because of good track record of performance, so it appeals the investors so pay more in that way as well.

Weakness of Carlyle Group

No Significance Given To Shareholders

The voting rights of the shareholders were very limited in the decision making of the company and their votes were not given any significant importance even they were not considered to elect or remove the directors, because of that not annual meetings were held……………………

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