Doughty Hanson Keeps Public Vehicle in Garage

What was supposed to be the latest race car built to conquer the public markets sits stalled in its garage.

Doughty Hanson

called off plans to hold an IPO on Amsterdam’s Euronext market last week. The London-based private equity firm had intended for its public vehicle, Doughty Hanson & Co. Investments LP, to begin trading after a $1.27 billion (€1 billion) IPO. It was designed to invest in funds managed by the firm.

The firm included terms to assuage investor fears that the fund might suffer the same fate as similar vehicles that have quickly sunk below their IPO price. Doughty Hanson put a cap of approximately $1.5 billion (€1.15 billion) on the fund, and adopted a structure that delayed the payment of management fees and carried interest. But it wasn’t enough, and now the mothballed IPO joins the parade of proposed private-equity public offerings that never quite made it to market.

“Concerns over the trading performance of similar recent transactions, which trade at discounts of up to 15% compared to IPO price, mean that the offering has been postponed so that investors are not exposed to any potential discount,” the firm said.

Doughty Hanson may well have been referring in part to New York-based Kohlberg Kravis Roberts & Co. (KKR), which launched KKR Private Equity Investors this past May. While it raised $5 billion in its IPO, its stock price fell significantly and now trades at a 15% discount to its IPO price. New York’s Apollo Management raised $2 billion through its public market vehicle, AP Alternative Investments, a fund earmarked to invest in Apollo-sponsored deals, on the Euronext exchange (see Buyouts, Aug. 15, 2006). But the offering fell short of its initial $2.5 billion goal, and months after its IPO, the Apollo public vehicle has been trading at just under its offering price. Insitutional shareholders were large buyers in both offerings.

The withdrawal of Doughty Hanson from the IPO market, at least for now, slows the advance of private equity firms into the public equity markets. But investors are still hopeful about the future of these public ventures. For many, the move to the public realm is a sign of private equity’s institutionalization. It provides a pool of permanent capital for private equity firms to draw upon, and bridges the gap between private equity’s cottage industry past and today’s world of mega-funds and consortium deals.

Inded, there are still more public launches in the pipeline. Swedish private equity firm EQT Partners is reported to be seeking up to $1.3 billion (€1 billion) through a public listing. One ray of hope for EQT and others is the performance of Swiss fund-of-funds manager and secondary investor Partners Group. This past March the Zug, Switzerland-based secondary buyer and private equity giant firm went public with a $1.7 billion (€1.4 billion) IPO. The vehicle, Partners Group Global Opportunities, raised $507 million (€400 million) through listing its shares. Recentlty they traded at 2% higher than its IPO price.

Last year, Ripplewood Holdings launched RHJ International on the Brussels Euronext exchange. Unlike the public vehicles launched this year, the Ripplewood IPO gave new shareholders an interest in companies the firm already controlled. Other private equity shops with publicly traded funds include London’s Pantheon Ventures, Canada’s Onex Corp., London-based 3i Group, and business development companies such as American Capital Strategies, Gladstone Capital and Allied Capital. —M.S.