Blackstone Says Deals Will Get Harder

The private equity company Blackstone has predicted a slowdown in multibillion dollar "mega-deals" as America's credit crunch reverberates throughout the global financial markets.

In its first financial results since its flotation in June, Blackstone more than tripled its quarterly profits from $224m to $774m (£383m). Its shares jumped 6.5% to $26.92 by mid-morning Monday.

Blackstone, which has been a driving force behind these leveraged corporate takeovers, said it believed that the economic fundamentals remain strong, but that new deals are hard to establish in the present volatile climate. Hamilton James, the firm's chief operating officer, said: "I think there will be fewer mega-deals until the debt markets come back a bit."

Blackstone's European businesses include United Biscuits, Orangina, Madame Tussauds and the Café Rouge chain. In America, it recently pulled off a record $39bn deal to buy the commercial landlord Equity Office Properties.

The company, which has come under attack over its low tax rates and lavish payouts to senior staff, said cyclical swings were crucial to its success as it follows the basic principle of buying at cheap points and liquidating its assets at the market peak.

"The portfolio is in great shape operationally except for some company-specific issues," said Mr James on a conference call in New York. "We see no signs of a general slowdown in economies, particularly in the US economy."

However he added that set-up fees for deals would be "softer" and that the sale of assets could be delayed by the stock market's recent wobble: "Setting up new deals in this environment is clearly harder." Blackstone was the first of America's private equity powerhouses to sell shares on the public markets - and its prospectus created a furore as it revealed the extent of the returns reaped by the company's founders.

The company's chief executive, Stephen Schwarzman, received $449m on flotation and retains a stake in the business worth $7bn. He threw a $3m star-studded 60th birthday party in New York last year and is said to enjoy eating stone crabs costing approximately $400 each.

Democrats in Congress have objected to the low rate of tax paid by private equity entrepreneurs, although President George Bush has opposed legislation to increase levies.

Mr James told investors today that he "wouldn't be surprised" if tax rates were raised over the next few years as the political balance changes in Washington. He said the "worst case scenario" was that by 2013, Blackstone's present tax rate of between 15% and 20% rises to a level of between 35% and 40%.

The private equity industry has faced similar political problems over its low tax rates in Britain. Leading figures in the industry were forced to defend the tax they paid before a committee of MPs this year. The MPs subsequently called on the Treasury to look into the tax paid by industry figures and their non-domicile status.