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The parallels are getting uncanny. When Google went public in 2004, it was the hottest company in a rejuvenated internet sector, recovering from its bust and getting into its stride for a second boom. The search company’s profits were soaring. The success went to its founders’ heads.
Larry Page and Sergey Brin got too cute on Google’s initial public offering, opting for a controversial auction model. Amid scepticism over the apparently lofty valuation, it backfired. Individual investors shunned the auction and institutional shareholders got a bargain price.
Meanwhile, the founders opted for a controversial two-tier voting structure. They did an ill-timed interview with Playboy magazine that was published during the pre-IPO “quiet period” and upset the Securities and Exchange Commission. And, after a disagreement with Goldman Sachs, the Wall Street bank was excluded as a lead adviser.
Fast-forward three years. Blackstone is king of the hot sector: private equity. Buy-outs are booming again, in spite of previous cycles ending in tears. Blackstone’s growth has been extraordinary. This time it is Steve Schwarzman, Blackstone’s chief executive, who got carried away.
He again opted for a shareholder structure that concentrated voting power within the firm. Blackstone decided to use a controversial accounting standard, which it has since backpedalled on. It used a corporate structure to minimise tax that is now under assault from lawmakers. He excluded Goldman Sachs from the top tier of advisers because of disagreements. He has even managed to draw scrutiny from the SEC after an article that appeared in the Wall Street Journal – hardly as glamorous of Playboy but perhaps more in tune with his more sober image.
The similarities are striking, including the big uncertainties over valuation that were exacerbated by last week’s bombshell tax bill. Mr Schwarzman can only dream that the parallels persist, to some degree, into Blackstone’s post-IPO performance. Google has, after all, risen a cool 490 per cent since going public.
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