Blackstone Plans To Prune Staff

The New York private equity firm is planning to lay off roughly 70 staffers amidst the credit crunch, according to one source.

The Blackstone Group is planning to lay off roughly 70 staffers amidst the credit crunch, a source told IDD, a sister publication of MAR.

A New York private equity firm that employed 93 senior managing directors and more than 780 other investment and advisory professionals through September, Blackstone is said to be making a wide range of job cuts.

Officials from Blackstone declined to comment on the matter.

The layoffs, initially reported by Bloomberg, come on the heels of disappointing results for Blackstone's various business segments in the third quarter. It reported negative revenues for its private equity business of $68.3 million, negative $273.7 million of revenues for its real estate business, and negative revenues of $48 million for its alternative asset management business.

Like other buyout groups, Blackstone has been hard hit by the credit crunch and whipsawed equity markets. Shares of the $1.7 billion market-capitalized business declined from a high of $23.99 a share over the past year to $6.49 on Friday. 

That Blackstone is reducing its head count, however, is hardly surprising. A number of other global private equity houses have moved to eliminate jobs including The Carlyle Group, Investcorp (which owns SourceMedia, the parent company of MAR) and 3i Group, as well as a spate of middle-market shops.

The cuts at the largest buyout firms might be counter-productive considering the changes facing the industry, according to some industry participants. One managing director at a rival firm says: "A $30 billion deal, generally speaking, doesn't require more manpower than a $1 billion deal."

Since it was established in 1985 as a leveraged buyout shop by former Lehman Brothers banking heavyweights Stephen Schwarzman and Pete Peterson (Peterson was chairman of the Federal Reserve Bank of New York from 2000 to 2004), Blackstone has morphed into an asset management giant with offices in Asia, Europe and the US. Its businesses span the gamut of private equity, real estate, alternative asset management and financial advisory.

Still, it's Blackstone's orchestration of large transactions like the $39 billion purchase of Equity Office Properties Trust in February 2007 that has garnered it accolades in the M&A world. The corporate private equity business generated a 22.6% annual internal rate of return over a 20 year period through 2007, according to regulatory filings.

In March, the financial sponsor bolstered its debt investment business with the $635 million purchase of New York's GSO Capital Partners. The acquisition gave Blackstone a mezzanine and senior debt investment group run by a trio of seasoned ex-Credit Suisse investment bankers: Bennett Goodman, Tripp Smith and Doug Ostrover.

Blackstone sought to expand its West Coast presence this year with the opening of an office in Menlo Park, Calif. It hired Citigroup technology banker Ivan Brockman to oversee the location.

In July, Blackstone added Donaldson Lufkin & Jenrette investment banking statesman Richard Jenrette to its director board.

If Blackstone intends on deploying capital from its most recent $21.7 billion fund, the firm will likely have to chase after more smaller deals than originally envisioned. Moreover, the firm's portfolio has only grown in recent years, requiring more upkeep and attention, especially in distressing times.

Although the dearth of debt and economic slow down has severely impacted leveraged buyout activity in the US, Blackstone has remained busy by strengthening its focus on emerging markets. In October, it carried out two such transactions: a $600 million investment in specialty chemicals producer China National Bluestar, and separately joined South Korea's National Pension Service of Korea in a memorandum of understanding to invest $4 billion in South Korean businesses.

In another separate emerging market deal announced earlier this month, Blackstone announced the formation of an information technology infrastructure and business services company with Mumbai, India-based CMS Group.

While the transactions show an ability to stay active on the part of Blackstone, the deals are significantly smaller than the $17.6 billion Freescale semiconductor buyout or the Equity Office Properties acquisition, two buyouts completed during the height of the M&A boom.

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