Blackstone-Backed IPOs Falter as QuinStreet Cuts Sale (Update3)

A

By Michael Tsang, Nikolaj Gammeltoft and Jason Kelly

Feb. 11 (Bloomberg) -- Blackstone Group LP’s Travelport Ltd. postponed its initial public offering, while Graham Packaging Co. cut its deal by 55 percent as a slumping market for IPOs ensnared the world’s largest private-equity firm.

Travelport, a provider of travel-reservation systems, shelved its offer of shares in London at 210 pence to 290 pence ($3.29 to $4.54) to raise about $1.78 billion yesterday, citing market conditions. Graham Packaging, the York, Pennsylvania- based maker of plastic containers owned by Blackstone, sold stock at $10 each to raise $167 million, after seeking as much as $373 million, a filing with the U.S. Securities and Exchange Commission and Bloomberg data showed.

Blackstone’s setbacks come as private-equity firms turn to IPOs to sell some of their $502 billion in investments after returning less money to clients in 2009 than any year on record. While Barclays Plc estimates that U.S. initial offerings will triple this year, six companies have shelved or delayed sales. QuinStreet Inc. cut the price of its deal by as much as 21 percent yesterday in Frank Quattrone’s return to the IPO market.

“Blackstone’s job is to give money back to their investors, so this is not great for them,” said Steven Kaplan, a professor at the University of Chicago Booth School of Business who studies the private-equity industry. “The window opened and they tried to climb through it. Now that window’s closed somewhat.”

Merlin’s Offering

Merlin Entertainments Group Ltd., the Blackstone-backed company that operates the Madame Tussauds waxworks museum and the London Eye Ferris Wheel, also abandoned plans for a 2 billion-pound IPO, the Daily Telegraph said today, without saying where it got the information.

The theme-park operator said in an e-mailed statement that all options, including an IPO, remain under consideration. The company doesn’t expect to reach a conclusion in the near future, the statement said.

Blackstone’s stumbles may hinder buyout firms seeking to use IPOs to return cash to clients and undermine their efforts to secure more commitments from investors.

Money raised by leveraged-buyout firms last quarter tumbled 78 percent to $35 billion from a year earlier, according to London-based researcher Preqin Ltd., after the worst financial crisis since the Great Depression stymied deals.

IPO Pipeline

Distributions to clients including pensions and college endowments fell to an estimated $20 billion in 2009, 72 percent less than a year earlier and the smallest amount since Preqin’s data began in 2000.

Companies backed by private-equity firms have filed to raise $4.2 billion in IPOs, according to data compiled by Greenwich, Connecticut-based Renaissance Capital LLC, which has followed initial offerings since 1991.

KKR & Co. of New York, run by Henry Kravis and George Roberts, may seek an initial offering of HCA Inc., the Nashville, Tennessee-based hospital chain that was taken private in a $33 billion leveraged buyout in 2006, according to a Renaissance Capital forecast of companies that have yet to announce fundraising plans with the SEC.

“The difficult start to the IPO market in 2010 is more an issue for private equity than for stock-market investors,” said Richard Lacaille, London-based chief investment officer at State Street Global Advisors, which has about $1.9 trillion under management. “There’s a pressure to open up the IPO pipeline.”

Schwarzman’s Plan

Stephen Schwarzman, 62, Blackstone’s chief executive officer, said in October that there were as many as eight companies that it planned to sell in IPOs. Since December, Blackstone has failed to trim its stake in at least three that it tried to take public.

Travelport, which owns a stake in online booking company Orbitz Worldwide Inc., was acquired by New York-based Blackstone in 2006. Travelport started its offer on Feb. 1 and planned to sell 383 million to 528 million shares. The company pulled the offer yesterday that may have valued it as the biggest IPO in the U.K. since 2007, according to Bloomberg data.

“Since we announced our intention to float, there has been significantly increased volatility and uncertainty in global equity markets,” Jeff Clarke, Travelport’s chief executive officer, said in an e-mailed statement. “We will consider bringing it back to the market at a future date, when equity market conditions are more favorable.”

Barclays of London, New York-based Citigroup Inc., Deutsche Bank AG in Frankfurt and Zurich-based Credit Suisse Group AG and UBS AG were managing the sale.

Fourth Time Around

Graham Packaging’s IPO was at least the fourth attempt by Blackstone to sell the company since completing its acquisition in 1998, data compiled by Bloomberg show. Graham makes Tide detergent products for Procter & Gamble Co. in Cincinnati and Ragu pasta sauce jars for London- and Rotterdam-based Unilever.

The shares of Graham gained 2 percent to $10.20 at 4:05 p.m. in New York Stock Exchange trading today.

Blackstone, which owned a 75 percent stake in Graham Packaging, and other existing owners dropped their portion of the sale after investors rejected an offer of as much as $16 a share. That reduced the number of shares offered to 16.67 million from 23.33 million. Citigroup, Goldman Sachs Group Inc. of New York and Deutsche Bank were the lead underwriters.

At the original midpoint price of $15 a share, Graham would have a market capitalization of $1.01 billion. The company’s enterprise value, or the sum of its stock and debt minus cash, would have been $3.09 billion, compared with $335.6 million in earnings before interest, taxes, depreciation and amortization for the 12 months to Sept. 30.

Relative Value

That enterprise value-to-trailing 12-month Ebitda ratio of 9.21 is 59 percent higher than the median 5.81 times for 150 makers of paper and plastic containers, Bloomberg data show.

“Blackstone hoped they could take advantage of a window of opportunity for IPOs, but the market has caught up with them,” said Josef Schuster, the Chicago-based founder of IPOX Capital Management LLC and manager of the Direxion Long/Short Global IPO Fund, which will start in March. “You need to give incentives to get the deals done now. It’s even more difficult for private equity-backed companies because they’re not cheap.”

Blackstone spokesman Peter Rose declined to comment on Graham Packaging’s IPO or Travelport’s postponement in an e-mail yesterday.

In December, Blackstone accepted a 25 percent discount for Knoxville, Tennessee-based Team Health Holdings Inc.’s initial offering and also dropped its portion of the sale.

Blackstone’s IPO

Buyers of Blackstone’s own IPO have seen the stock tumble twice as much as the Standard & Poor’s 500 Index. Since raising $4.75 billion at the top-end IPO offer price of $31 each in June 2007, Blackstone has lost 60 percent of its value. The benchmark index for American equities fell 29 percent in the same span.

QuinStreet sold 10 million shares at $15 each yesterday after seeking $17 to $19. The Foster City, California-based company runs marketing Web sites for clients such as for-profit education companies and gets paid when visitors click for more information and become customers. The stock was unchanged in Nasdaq Stock Market trading today.

The IPO marked the return of Quattrone, 54, who led Credit Suisse First Boston’s technology banking group during the Internet boom. He also helped take Cisco Systems Inc. of San Jose, California, public in 1990 and arrange the 1997 IPO of Seattle-based Amazon.com Inc.

The sale was the first he’s taken part in since the NASD accused him of giving out IPO shares to favored executives to win investment banking business and federal prosecutors charged him with obstructing justice in 2003. NASD dropped its case in 2006 and a U.S. judge formally approved dismissal of charges against Quattrone in August 2007.

He started San Francisco-based Qatalyst Partners, an advisory firm focused on technology companies, in March 2008. Quattrone declined to comment through spokesman Robert Chlopak.