New York-based private equity firm Blackstone Group is nearing a final close on its fourth buyout fund, Blackstone Capital Partners IV LP, which blew past its target. Launched in March 2001, the fund in February closed on $5.1 billion for a fourth close. Fund IV, which never officially announced a target, was presumably looking to beat Fund III’s $4 billion total. Fund IV’s final close looks to be coming in early June and is expected to bring in $5.5 billion to $6 billion, said a source close to the firm. Credit Suisse First Boston is placing the fund.
The well-received fund closing comes at a time when other large, long-standing players, like Apollo Management LP, are settling for less than expected totals (see story p. 5).
Blackstone seeks to invest between $100 million and $400 million per transaction and is known for interests across a broad range of industries. While Fund IV will maintain a general focus, it is likely to invest alongside Blackstone’s $2 billion communications fund, which closed in January 2001, and have an increased focus on European deals.
Bring in Da Music
In other Blackstone news, the firm is set to take over music and movie giant Columbia House Co. On college campuses, Columbia House stirs conversation of the multiple variations of names and addresses under which students have memberships, all in the name of getting 12 CDs for just 99 cents. Well, apparently, Blackstone Group, which plans to purchase a majority stake in the company for just over $400 million, heard the cash registers ringing.
Blackstone, through its affiliate Blackstone Capital Partners III LP, expects to close the deal with Columbia House in June. The company’s current owners, AOL Time Warner Inc.’s Warner Music Group and Sony Corp.’s Sony Music Entertainment Inc., which currently have an even split of the company, will each retain 7.5%. Blackstone will acquire the remaining 85%.
UBS Warburg LLC and Banc of America Securities LLC will lead a $145 million bank loan structured as a $30 million revolver and a $140 million institutional term loan, to finance the transaction. UBS Warburg and Pathway Ventures are advising Blackstone.
Columbia House, which generated revenue of $1.1 billion last year, has more than 16 million offline and online club members in North America, who purchase CDs, videos and DVDs from its entertainment clubs either through mail order or online. Revenue is down slightly from 2000’s $1.2 billion, following two years in the red. Scott Flanders, the chief executive of Columbia House, took his position when the company was floundering a few years ago and brought it back into the black.
Now while many music industry executives are fretting over the impact of MP3s and the still-fresh wounds from downloadable music websites like Napster, Columbia House is noticing a pick up in its DVD and video sales, which represented approximately half of last year’s revenue. And as Americans make the transition from VCRs to DVD players, those numbers will likely improve.
“This is an exciting opportunity for us to invest behind a first-class management team and a strong brand name,” said Howard Lipson, a senior managing director at Blackstone, in a prepared statement. “We look forward to working with Columbia House, and with two of our longest-standing corporate partners.”
In 1991, Blackstone purchased Six Flags Theme Parks with Time Warner. Co-founder of Blackstone, Peter Peterson, is a member of Sony’s board.
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