Sponsors Race To Produce Distributions

Bankers are expecting buyout shops to tap the public markets with fervor in 2011, as they capitalize on a buoyant equity market in their march to produce distributions to investors after a stagnant 2008 and 2009. How well they succeed could have a lot to say about the strength of the fundraising market this year.

Indeed, many individual buyout firms hoping to raise new funds need to return capital to investors if they hope to justify further commitments. “PE pros are looking at their portfolio asking themselves, ‘When did I buy it? Where are comps trading? Can I make a positive return?'” said Mark Bradley, head of financial sponsors coverage at Morgan Stanley. “And they’re very sensitive that the IRR clock is ticking.”

A stock market that performed well toward the end of the year, coupled with record-low interest rates, are also driving the push toward IPOs as opposed to just outright sales. “If you look at institutional investors that drive IPOs, where else are they going to put their money?” said Rob Brown, managing director at Chicago-based investment bank Lincoln International LLC.

At the high end of the market, marquee targets from the buyout boom such as hospital operator HCA Inc., backed by Bain Capital, Kohlberg Kravis Roberts & Co. and BAML Capital Partners; media research company Nielsen Holdings BV, backed by The Carlyle Group, The Blackstone Group, KKR, Thomas H. Lee Partners, AlpInvest Partners and Hellman & Friedman LLC; and energy company Kinder Morgan Inc, backed by Carlyle and GS Capital Partners, have all registered to go public. They are expected to hit the market at some time this year. Internet visual communication provider Skype, backed by a group of investors including Silver Lake Partners, is also planning on an IPO of up to $1 billion, according to Reuters, publisher of Buyouts.

On the smaller end of the scale, middle-market companies expected to go public this year include Spirit Airlines Inc., backed by Oaktree Capital Management LLC, which filed for a $300 million IPO in September 2010; and heating, ventilation and air conditioning products manufacturer Goodman Global Inc., backed by Hellman & Friedman, which in May 2010 filed to raise up to $500 million, according to bankers that Buyouts interviewed. The latter withdrew its IPO in November and in December Reuters reported Hellman & Friedman put the company up for sale, seeking more than $4 billion. But one banker told Buyouts the company is likely looking at an IPO as well.

Sources also recently told peHUB, an online affiliate of Buyouts, that digital advertising agency Rosetta, owned by Lindsay Goldberg, is also likely to go public in 2011.

A look at buyouts done in the boom years of 2005 through 2007 that are still owned by the same sponsors reveals scads of IPO candidates (see table, page ). When shown a spreadsheet of the top 50 deals from that period, arranged by value, that are still owned by the same sponsor, the anonymous banker quoted above said “most are in the process of going public,” meaning they have either filed or are having discussions about it with bankers.

This list includes some of the high-profile companies mentioned above, but also some dark horses such as supermarket operator Albertsons Inc., backed by Cerberus Capital Management; landscaping products maker ServiceMaster, backed by Clayton Dubilier & Rice; and Ryerson Inc., a distributor of metals to construction companies and manufacturers, backed by turnaround shop Platinum Equity LLC.

The firms with the most potential IPO contenders on the list include Blackstone and Bain, with at least eight companies; Carlyle, with at least six companies; and Madison Dearborn Partners and Thomas H. Lee with at least five companies.