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Q2 exits: The return of the legendary PE-backed IPO – quarterly exits

Spotting an IPO in 2016 has been like trying to find the legendary Yeti.

But in the second quarter, it finally happened: Three sponsor-backed companies went public, raising a combined $1.6 billion and breaking the IPO freeze that descended over the markets in the volatile early winter months.

US Foods Holding Corp raised the majority, collecting about $1.2 billion for its offering. The food service distributor is backed by Clayton, Dubilier & Rice and Kohlberg Kravis & Roberts.

The healthcare payment processing and auditing company Cotiviti Holdings Inc   went public for $237.5 million behind Advent International.

And AEA Investors-backed Gypsum Management and Supply Inc is the third of the group, having hit the market with a $147 million IPO.

As the accompanying “PE-Backed IPO Exits by Quarter” graph shows, IPOs have a history of sharp fluctuation without much, if any, correlation. But the past four quarters have all been relatively quiet, including the shutout in Q1 2016.

Exits up

The opening of the PE-backed IPO market was part of the broader increase in PE exit activity in the second quarter, with deal value climbing despite a decrease in overall transaction count.

As the accompanying chart shows, this quarter’s total exit volume represents a near-$9 billion rise from Q1, while the exit deal count fell to the lowest point since Q3 2013. (The figures could rise; these numbers are inclusive only up to June 26.)

U.S. buyout shops sold 118 companies, down 15.7 percent from the 140 offloaded in the first quarter and down 12.6 percent from 135 in second-quarter 2015.

The $24.6 billion of exit volume falls right in the middle of last quarter’s $15.6 billion and second-quarter 2015’s $35.8 billion.

As first halves go, 2016 pales in comparison with last year. While the deal count was similar — 258 in 1H 2016 against 271 in 1H 2015 – the $40.2 billion volume was overshadowed by the $72.7 billion of 1H 2015.

Of this quarter’s 118 exits, 35 had disclosed values. Out of that group, 10 cleared the billion-dollar hurdle.

What’s more, three deals eclipsed the largest exit from Q1: Advent International selling its holdings in Priority Group Ltd for $2.2 billion.

The top exit of Q2 was Stryker Corp buying the medical-instruments maker and wholesaler Sage Products LLC from Madison Dearborn Partners for nearly $2.8 billion.

The second-largest transaction by value was Truven Health Analytics Inc. IBM Watson Group took over the analytics benchmarker of healthcare solutions from Veritas Capital Partners for $2.6 billion.

Coming in third was Total System Services Inc acquiring TransFirst Inc, a payment-processing-tech company, from Vista Equity Partners for almost $2.4 billion.

High technology led all sectors by number of exits. The industry accounted for 24 of the 118 deals, or 20.3 percent. Industrials were in second place, with 19 deals (16.1 percent). Healthcare came in third with 13 deals (11 percent).

Download exit data and charts here:

Photo: Traders work on the floor of the New York Stock Exchange October 19, 2015. REUTERS/Brendan McDermid