The deal, which values Carlyle at nearly $20 billion, strengthens the buyout firm’s ties to the Middle East, which has began to use the profits from higher oil prices to go on a buying spree.
The region has spent $64 billion so far this year on investments abroad, according to Dealogic, compared with $30.8 billion in all of 2006. Just yesterday, the Borse Dubai, the government-controlled exchange, agreed to take a 19.9 percent stake in the Nasdaq and buy Nasdaq’s 28 percent stake in the London Stock Exchange. And the Qatar Investment Fund said it had acquired 20 percent of the London exchange.
“We’re going to keep seeing more money coming out of the Middle East,” Steven A. Baronoff, head of mergers and acquisitions at Merrill Lynch. “They have the currency working in their favor. And they like taking minority stakes.”
Carlyle, which manages about $76 billion, has long had ties to the region. It was one of the original fund-raisers there and is now in the midst of setting up a fund there.
Yesterday’s deal calls for the Mubadala Development Company, which is owned by Abu Dhabi, to pay $1.35 billion for 7.5 percent of Carlyle.
The price represented a 10 percent discount to a mutually agreed valuation for Carlyle of $20 billion. Abu Dhabi is the capital of the United Arab Emirates.
The deal, which comes as the private equity industry has been nearly shut down by the tighter credit market, is also a powerful bet that deal-making will resume eventually.
Carlyle is part of the group that bought the chip maker Freescale Semiconductor last September for $17.6 billion, the largest leveraged buyout ever in the technology sector, and is a member of the consortium that has agreed to buy Home Depot’s supply unit for $8.5 billion.
Among its acquisitions in the last year are Manor Care, a nursing home operator that it bought for $4.9 billion, and the Sequa Corporation, a maker of aircraft and auto parts for which it paid $2 billion.
The Abu Dhabi transaction could also provide a benchmark valuation if Carlyle should follow its rivals, the Blackstone Group and Kohlberg Kravis Roberts, and pursue an initial offering.
At $20 billion, Carlyle would be worth slightly less than Blackstone, which went public in June and now has a market capitalization of nearly $28 billion. Carlyle has $75.6 billion in assets under management. Blackstone’s assets under management were about $92 billion at the end of the latest quarter.
Shortly before it went public, Blackstone sold a $3 billion stake to the investment arm of the Chinese government. That deal may have given Blackstone an inside edge in China, where it recently completed an investment in a government-owned chemical company, BlueStar.
This summer, Apollo Management sold a small stake to the Abu Dhabi Investment Authority, which was considered a prelude to a public offering. And while Kohlberg Kravis has a public offering in the works, the volatile market could delay it.
Carlyle, meanwhile, has kept any public offering plans to itself. But yesterday, the firm appeared to tip its hand and indicated that it expected to pursue a public offering in the next couple of years, if not sooner.
Part of the deal with Abu Dhabi includes a provision that requires Carlyle to guarantee the $20 billion valuation if the firm ever goes public, hinting that it may be an inevitability. In the event that Carlyle is valued at less than $20 billion at the time of an offering, the firm would give Mubadala a larger piece of the business to make up for the difference.
In an interview yesterday, Carlyle’s co-founder, David M. Rubenstein, said: “It’s more likely than not that all the large private equity firms will be public in five years. And we’re a large private equity firm.”
But he added, “We didn’t want to be rushed into an I.P.O.”
Carlyle’s past connections in Washington and to the military contractors might have made this a sensitive deal had it been several years ago.
In the late 1990s, the firm’s advisers included former President George Bush and former Secretary of State James A. Baker III. However, those advisers have retired as the firm has focused on hiring more operationally focused executives. Its current chairman is the former chief executive of International Business Machines, Louis V. Gerstner Jr.
Even without a public offering, Carlyle’s deal with Abu Dhabi represents a huge gain, at least on paper, for one of the firm’s early investors: Calpers, the pension fund for California state employees. Calpers paid $175 million for a 5.5 percent stake in Carlyle in 2000. Based on an overall valuation of $20 billion for the firm, Calper’s stake in Carlyle would be worth about $1.1 billion.
Peter Edmonston contributed reporting.
Correction: September 22, 2007
A headline in Business Day yesterday with an article about plans by the Mubadala Development Company, which is owned by Abu Dhabi, to acquire a stake in the Carlyle Group misstated the size of the sale. Carlyle will sell a 7.5 percent stake, not 20 percent.