Is Carlyle in Line for the IPO Boom?

The Carlyle Group’s aim is to invest in companies, later sell them for a large profit and return the proceeds to their super rich investors. Other investment houses have the same aim but none are as politically connected as Carlyle with their cache of ex-government leaders and Pennsylvania Avenue address.

Wall Street is undergoing an IPO boom not seen since the go-go dot com days. Over $40 billion has been raised in 172 deals so far this year. A backlog of 130 deals has been filed with the SEC valued at over $18 billion. Are any Carlyle affiliates in line?

Consider one deal with both its huge financial booty and insider political connections. Carlyle purchased CSX Lines LLC in February 2003 from CSX for $240 million in cash and $60 million in securities. They renamed the company Horizon Lines LLC before selling it a mere 15 months later for $650 million. Goldman Sachs advised Carlyle on the deal.

In holding the company for just over a year, Carlyle more than doubled their initial investment. Does this seem a bit fishy to you? Did the first group undersell or the second group overpay? Does this sound a bit like Randy “Duke” Cunningham’s house flipping?

U.S. Secretary of the Treasury John Snow served as Chairman and CEO of CSX prior to his appointment to the Bush administration. Sec. Snow served from January 2003 until June 2006. His replacement on the Bush cabinet, Henry M. Paulson Jr. served as chairman and chief executive of Goldman Sachs from 1999 to 2006.

Mr. Snow’s firm sold Carlyle the company for $300 million while Mr. Paulson’s company advised Carlyle on the sale for $650 million a mere 15 months later.

While the example given is an outright sale, another way for investment houses to make money is by conducting an IPO on their privately held company. HCA is on their third machination of taking the company private. After the two previous times the company conducted an IPO to make money for their investors.

Bush’s main financial advisor Henry Paulson wants to grease the skids for more IPO’s by international companies on American exchanges. The Treasury Chief hopes to relax some of the Sarbanes-Oxley regulations enacted after the Enron debacle. He said regulators must ease rules requiring public companies to test their internal controls.

So who benefits from all of this? The dealmakers do of course. While Republican oriented Carlyle is the most egregious example of politically connected profiteering, they certainly are not alone. Ask ex Senator Tom Daschle, Defense Chief William Perry, and even President Bill Clinton about their role on investment house boards or even their start up.