IPOs: will they float or flounder?

In a recent poll conducted by unquote”, six out of 10 respondents said they did not believe recent expected listings would be successful for private equity. The scepticism is backed up by subsequent examples of pulled IPOs, with hopeful aspirants such as Travelport, New Look and Merlin all shelving their plans to go public in the last few weeks.

Desperate for exits, most private equity backers have embraced the public markets rally at the end of last year, as an opportunity to float portfolio companies – an exit route that has been virtually shut since the onset of the credit crisis. Says one broker: ”The IPO discussions in the market are certainly more sell-side led at the moment.”

That said, fledging appetite for flotations has further resulted in private equity houses running often cited dual track processes looking to divest to fellow private equity houses. This phenomenon was best exemplified when Bridgepoints’ Pets at Home, which had been expected to float, was snapped up by KKR.

Understandably, such cases are reportedly putting institutional investors off, as they increasingly feel they are only used to create competition and drive up prices. At the same time investors’ appetite is key and with a prevailing macroeconomic uncertainty, it is not surprising that six out of ten respondents would not opt to put their money with an IPO. Acromas, owned by Charterhouse, CVC and Permira, is the latest example of an IPO reversal, although rumours of a planned flotation have since been rejected by the company.

Nevertheless, 40% still feel optimistic about the IPO market. Recent news that Providence Equity is reportedly pushing for a flotation of Kabel Deutschland, even after reported bids from private equity firms in the €5-5.5bn range, is likely to strengthen their conviction that the IPO route is set to open. As one broker puts it: “The right company with the right metrics will still float successfully.”

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