The difficulties encountered by private equity-backed IPOs in 2010 reignited the debate on the public markets’ cautious attitude towards such assets. A seminar hosted by Taylor Wessing today saw industry participants discuss what is on the cards for 2011, and which factors are key to a successful listing. Greg Gille reports

It will come as no surprise to hear the global financial crisis dealt a crushing blow to private equity-backed IPOs. According to unquote" data, flotations of PE-backed European companies fell by 93% between 2007 and 2008, from 62 to just four. The situation has somewhat improved since then, with unquote" recording 22 listings last year.

Nevertheless, this figure remains a far cry from the one witnessed during the market heyday. What is more, a number of 2010 listings saw share prices tumble on public markets in the months following their IPO. The worst performing private equity-backed listings took place in the UK, with companies such as Cambria Automobiles Holdings, Promethian Technologies Group and Ocado experiencing sustained price falls throughout the year.

This phenomenon led many observers to comment on a lack of appetite for PE-backed assets, partly rooted in the image of private equity funds taking a company private, saddling it with debt and re-listing it to make a swift exit. William Belcher, capital markets partner at Taylor Wessing, indeed advised PE shareholders to consider longer lock-in periods to attract public investors, as they are generally seen as an incentive for management to stay involved and ensure a smooth transition process.

Panellists at the seminar however dismissed the idea of a general mistrust of PE-backed assets. "I wouldn't single out the PE community for the breakdown of trust with public markets" said one participant, before pointing at pricing issues as a factor in the counter performance of many recent IPOs: "Ocado constitutes a pivotal event - pragmatism on pricing is key."

The share price range suggested by Ocado's management was indeed widely criticised for being unrealistic prior to the IPO, given that the company had yet to post a profit. Craig Fraser, head of research at Arbuthnot Banking Group, highlighted the importance of carefully assessing the value of a business before listing it: "Don't even think about an IPO before you have undergone a full and proper valuation based on forecast earnings and use of funds."

Pricing is not the only key to investors' hearts though, with a strong business model being equally important: "Premiums can also be obtained if you can demonstrate attractive characteristics such as a dynamic growth story, a market leading position and a strong management team. Consider these points carefully; otherwise you may not get value for money" Fraser continued.

The recent listing of US-based hospital operator HCA - the largest PE-backed IPO since the financial crisis - apparently ticked all the boxes, and might encourage GPs to consider the public markets as a viable exit route in the coming months. Panellists however pointed at a sustained period of instability for global markets in 2011 in light of the ongoing events in the Arab world and Japan, and the negative effect this could have on IPOs.

At a time when most GPs are rushing to return money to investors before going fundraising again, it remains to be seen whether exiting via the public markets will be a bet worth making - especially as corporate buyers are currently displaying a strong appetite for M&A opportunities.