In a bold move, private equity giant Blackstone is launching a $2.1 billion IPO for the International Gemological Institute (IGI) in India. As the second-largest certification company globally, IGI has drawn attention for its rapid growth and market dominance. However, the proposed valuation has raised eyebrows within the industry.
IGI: A Market Leader in Certification
Founded in Antwerp, Belgium, in 1975, IGI operates 31 laboratories and 18 gemology schools worldwide. It certifies:
- Lab-grown diamonds (over 50% of revenue).
- Studded jewelry and colored stones (just under 30%).
- Natural diamonds (less than 20%).
In 2023, IGI issued 8.39 million certificates, generating approximately $105 million in revenue, with an EBITDA of $58.5 million and a profit after tax of $39 million.
Blackstone’s Acquisition and IPO Strategy
Blackstone purchased IGI from China’s Fosun Group in 2022 for $569 million, splitting the acquisition cost between IGI (India), IGI (Belgium), and IGI (Netherlands). The current IPO includes:
- $173 million in new shares issued by IGI (India).
- $324 million in existing shares sold by Blackstone.
- A $158 million buyout of IGI (Belgium) and IGI (Netherlands) by IGI (India).
Controversial Valuation Metrics
The suggested pricing range for IGI (India) shares implies a 27x sales multiple and a 53x earnings multiple, which analysts consider steep given the market’s current conditions. IGI (India) alone accounted for 98% of IGI Group’s profitability in 2023, with sales of $75 million and after-tax profits of $38 million. Critics point to:
- The rapid cash drain in IGI (India), with reserves dropping to $2 million by September 2024.
- Blackstone’s extraction of $22 million in dividends earlier this year.
Concerns Over Asset Pricing
IGI (India) is acquiring IGI (Belgium) and IGI (Netherlands) at a combined value of $158 million, despite these entities contributing just $720,000 to after-tax profits in 2023. This raises questions about whether the deal is more beneficial to Blackstone than to IGI (India) investors.
Lock-Up Periods and Bonus Shares
The IPO includes lock-up periods for:
- Anchor investors (30–90 days).
- Blackstone's holdings, up to 20%, locked for three years.
However, the May 2024 bonus share issue has drawn scrutiny over how much of Blackstone’s stake is genuinely restricted.
A Windfall for Blackstone
By the IPO’s conclusion, Blackstone will have monetized $509 million through share sales, dividends, and the IGI (Belgium) and IGI (Netherlands) buyout while retaining a majority stake in IGI (India).
Caveat Emptor
While IGI’s growth story and market position are compelling, the valuation and transaction structure have left industry watchers cautious. As always, potential investors are advised to conduct due diligence.