Wednesday, June 27, 2007

Carlyle Authenticates IPO Cash Register Ringing

The Carlyle Group invested in AuthenTec Inc., a computer security fingerprint identification company with a number of partners in 2004. The investment totalled $15 million with Carlyle taking the lead position. As "the lead investor" Carlyle stands to do well in AuthenTec's just announced independent public offering of 8.625 million shares, 7.5 million to the public and 1.125 million in optional shares for firms bringing the company to market. At $11 apiece, proceeds could total nearly $95 million.

However, the company would only get $70 million as some shares are offered by shareholders. Also the cost of underwriting fees reduces the take. What's even more amazing is the IPO is offering only about 25% of the company's stock according to the prospectus. Some 19 million shares remain in the kitty to be offered to the public later. Twenty six million shares at $11 each equates to nearly $300 million.

How much will Carlyle net on this company when it's said and done? TGC Holdings currently owns 2.6 million shares of common stock. This is not expected to change via the public offering. In addition, Carlyle's nearly 10 million shares of preferred stock will convert into 2.5 million shares of common stock. The prospectus guarantees the Series D preferred stock holders will at least double their initial investment. If the stock price holds, they'll do much better than that. Carlyle stands to own about 5 million shares of AuthenTec. At $11 a share, that equates to $55 million. Their initial investment in 2004 stood at $10 million. A $45 million or 350% profit sounds big enough to share.

President Bush's 15% capital gains tax rate will save Carlyle and partners millions in taxes from this one transaction. The federal government contributed even further to AuthenTec's success as the Census Bureau will use their technology to conduct the 2010 census.

This pattern of buying companies, increasing their federal book of business and spinning them back off at a huge profit is looking familiar, United Defense Industries, Horizon Lines, U.S. Investigations Services, and QinetiQ to name a few. When will the public wise up?

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