The war against Blackstone’s valuation continues. Yesterday we noticed that someone seemed to be suggesting to Reuters that Blackstone’s $40 billion valuation was what caused Goldman to walk away from the deal. (Incidentally, the consensus among our readers is that this story is completely implausible and was probably planted by Goldman itself.)
BreakingViews has another critique. Noting that the valuation would make each of Blackstone’s 770 employees $50 million, BreakingViews, wonders how Blackstone’s business can really command that kind of valuation.
Financial firms, which generally operate under more competitive conditions, tend to have lower valuations. The 27,000 heads at Goldman Sachs Group Inc. are priced at a modest $3.2 million on average. Businesses with cast-iron franchises can be worth more. For instance, Moody's Corp., the credit-ratings business, has a market valuation per head of $5 million.
That sounds persuasive but keep in mind that this "per employee valuation" is only measuring half of the equation (at best). It is discounting additional productivity by, well, 100%. What about those enormous per-employee earnings we saw in the IPO? Measured on a per-employee basis, Blackstone made ten times as much as Goldman did last year. With $3 million in earning per employee, Blackstone's is valuing its employees at only a 16.6 multiple. Put it that way and the Blackstone's IPO doesn't sound as outrageous.
Update: An anonymous reader proposes that this 16.6 multiple makes each and every one of Blackstone's a candidate for a personal private equity buyout. "All a 16.6x valuation means is that Blackstone contains approximately 770 buyout opportunities. . .the only difference is that Blackstone isn't getting the proceeds. Goldman could come in and buy almost any of their employees away," the reader explains.
Too Valuable? Blackstone's IPO Would Put a High Price on Staff [BreakingViews in Wall Street Journal]