Buyout firms see a strong year for IPOs as institutional investors back growing companies and buyout firms retain large stakes in the hope of getting even greater returns in the future, according to Buyouts sister news service Reuters.
After a rocky start in 2010 as public markets rejected a number of private equity-backed initial public offerings, the volume of private equity IPOs has picked up as investors see some successes and get ready to welcome more. A host of companies in Europe and the United States are on track to float as buyout firms see greater value from listing companies rather than selling, particularly to private equity rivals.
But some skeptics remain, believing institutional investors resent public markets being used as a dumping ground for over-geared companies, which are only enjoying a brief respite from tough conditions. “The IPO market is wide open,” said Kevin Albert, managing director at fund of funds
There were 145 IPOs and share sales in 2010, worth a total of $38.7 billion, according to data and consultancy firm Preqin. And so far this year, 11 private equity IPOs have raised $10.2 billion, Preqin said, with some large deals currently in the pipeline, including Danish cleaning and services firm ISS and U.S. hospital operator HCA, which if it prices at the top of its range, could be the largest private equity float in U.S. history. “Exit activity is increasing dramatically … and I think will increase this year well above last year,” David Rubenstein, a co-founder of
Initially suspicious that private equity firms were seeking to offload over-leveraged businesses that had no other obvious buyers, institutional investors rejected IPOs such as fashion retailer New Look and travel bookings firm Travelport. But a number of other companies have traded strongly after listing, prompting firms to think they can reap even greater profits taking the IPO route.
John Hahn, who leads
Its performance has been echoed by others, such as Danish jeweler Pandora, which priced its $2.1 billion IPO in October, and is now trading at about 47 percent above the listing price. U.S. pipeline company Kinder Morgan Inc., backed by Carlyle, went public in February, rising 3.5 percent on its debut. Some say these successes are prompting many private equity investors, who frequently like to get all their money back in one go, to view IPOs more favorably as an exit route. “If you have got a company that you think has large potential you are better off holding on and selling down in tranches,” said Pantheon’s Albert.
However, some concerns remain, and certain markets still remain resistant to private equity offerings. “In the UK, there is immense skepticism amongst the larger investors about private equity ‘dumping’ companies onto the market which is definitely a constraint,” said Jon Moulton, chairman of the British turnaround shop
Simon Meads is a Reuters correspondent in London. Megan Davies and Kylie Maclellan also contributed to this report.