Last week, I gave a daylong presentation to a group of Japanese financiers on mergers and acquisitions (M&A), and they were quite interested in China. So how do you break into that market? The question has dogged many financial institutions, yet it seems like the Blackstone Group has found a brilliant approach. According to a recent filing with the Securities and Exchange Commission, the mighty private equity firm snagged a $3 billion investment from the government of China.
To get a sense of this deal, let's take a look at the unsung hero of Blackstone -- Peter Peterson. Back in 1985, he co-founded Blackstone with Stephen Schwarzman.
From 1963 to 1971, Peterson was the CEO of Bell and Howell Corporation. He then served as the Assistant to the President for International Economic Affairs for Richard Nixon. A year later, he was the Secretary of Commerce. Keep in mind that in February 1972, Nixon was the first American president to visit the People's Republic of China and sparked what has become a critical global relationship.
Peterson went back to the private sector and became the CEO of Lehman Brothers
Now it has culminated in making China a strategic partner for Blackstone. With $1.2 trillion in currency reserves, China is hoping to get higher returns and also promote restructuring in its corporate sector. There's much fragmentation in the country, and that's a huge opportunity for private equity firms to bring about consolidation.
The equity stake in Blackstone will be less than 10% and will have a four-year lock-up on selling the shares. The shares also have no voting rights.
As for Blackstone, it's a slam-dunk. The deal prevents China from investing in any other private equity firm for one year, and this really gives Blackstone an unfair advantage compared to other private equity powerhouses like Goldman Sachs
In light of the success of the Fortress Investment Group
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 1,898 out of 28,990 players in CAPS. The Fool has a disclosure policy.