Carlyle stake sale gives US$20bn valuation

Carlyle Group has hinted at a future flotation of its management company by selling a 7.5% stake in itself to United Arab Emirates investor Mubadala Development Company.

Mubadala paid US$1.35bn in cash for the 7.5% minority interest, which has no associated voting rights and is subject to value-related protective rights. Carlyle said that the stake represented a 10% liquidity discount to the parties agreed US$20bn valuation for Carlyle.

At the beginning of the year, US-based Fortress Investment Group sold a 15% stake to Tokyo-based bank Nomura for US$888m, shortly before its initial public offering in February. In May, New York-based Blackstone Group sold a 10% stake to a Chinese state-owned investment company for US$30bn before floating the following the month with a US$33.5bn valuation.

Since then, Blackstone’s shares have traded well below the opening price, which, along with the credit crisis denting investor confidence, may delay any immediate move by Carlyle towards the public markets.

Carlyle co-founder David Rubinstein recently suggested that all big buyout firms would go public in the next few years, but Carlyle is likely to use Mubadala’s investment to fix a valuation if it does choose to IPO while realising value for management in the interim. The resources will also, said Rubinstein “add to Carlyle’s capital base, strategically expand our business and be used for additional investments”.

Mubadala’s investment also shows how much Carlyle has grown in value in recent years. The California Public Employees’ Retirement System (CalPERS), the biggest pension fund in the US and Carlyle’s only previous external shareholder, paid just US$175m for a 5% stake in 2000, which gave Carlyle a US$3bn valuation at the time. In July, the pension fund purchased a stake in Apollo Management Group for US$600m.

In addition, Mubadala has committed US$500m as a limited partner in one of Carlyle’s funds, possibly Carlyle Partners V, its fifth buyout fund, which is believed to be chasing a US$17bn target and received a US$1bn commitment from CalPERS last week.