Nordic floating frenzy flounders

With EQT's listing of XXL, 2014 witnessed eight IPOs, making it a bumper year for private equity-backed flotations and the highest level recorded in seven years.

The stock markets in Denmark, Sweden, Norway and Finland have had a solid year and private equity has made good use of it, with exits including Altor's Byggmax and OW Bunker made through listings.

However, as the end of the year draws closer, the IPO window in the Nordic region may also be nearing a close. October saw the Nasdaq OMX Nordic 40 index fall to its lowest point in 2014 and sentiment seems to be that additional IPOs this year are unlikely.

Reluctant listings
"Though there are IPOs in the pipeline, firms could be holding back simply because the market sentiment is a little worse now, compared to a month ago," says Joachim Høegh-Krohn, CEO of Norwegian fund-of-funds manager, Argentum.

And when asked if 2014 will equal the decade-high of 10 IPOs, which was achieved in 2005 and 2007, Høegh-Krohn is not convinced: "I don't think we will manage 10. There might be two more, but it is quite uncertain. Even though the market is challenged, it is very individual for the companies, where some might be well-received on the stock market, while others such as oil and gas, and oil and gas services, probably will not be."

Despite the uncertainty, Nordic Capital said in early November it plans to list Thule Group by the end of the year, signalling at least some belief in the market being able to support another IPO. However, in Denmark, the listing of pharma-giant Novo Nordisk's IT division, NNIT – one of the year's most anticipated stock exchange events – has been postponed until next year.

Patience is a virtue
Overall, the companies listed this year by private equity firms have performed well. Apart from OW Bunker, none have made big headlines for either positive or negative reasons, which, considering what some private equity-backed IPOs – such as Pandora and Debenhams – have endured, GPs are probably thankful for.

"In the past years, IPOs have had very mixed results – not just for private equity, but in general – while companies listed this year generally have done well," says Høegh-Krohn.

In fact, Høegh-Krohn suggests this year has bucked a general trend of IPOs being less desirable exit routes for private equity. He says flotations used to be almost a "last resort" just a few years back: "If you could not complete any other exit, then you tried to take the company to the stock exchange."

"However, what we have seen in 2013 and so far in 2014, IPOs have maybe been an increasingly preferred exit route," he says. Argentum's CEO also notes it has generally been the case that GPs have made better returns by taking companies public than they would have through other routes, the opposite of which held true before 2012.

While fund managers might lament the closing of the IPO window, a quick glance at Altor-backed ship fuel group OW Bunker tells an important story.

Listed in April, the company's stock market debut was seen as yet another private equity-backed company successfully trading publicly, but saw its share price drop by nearly half in the beginning of October. OW Bunker has since seen major investors Cantillon Capital and SEB Wealth Management sell down their stakes, with the latter exiting completely.

The take away from all this should perhaps be that now is not the time for GPs to tempt fate, but rather be patient and await calmer tides, or perhaps look at different exit routes less exposed to stock markets' jitters.

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