About face

19 October 2009

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At the time of going to press, the FTSE 100 had reached its highest point since early September 2008. Surpassing the 5,200 mark, it would seem it was the rally many had been hoping for, and indeed counting on: in the last few weeks, BC Partners became one of the first large buyout houses to pin its hopes on a continuing rally when it indicated intentions to float four of its portfolio companies (travel business Amadeus alone is expected to fetch around EUR8bn). Such a success would bring some much-needed liquidity to the firm's clients, who are likely to receive PPMs next year for a new fundraise

Now Blackstone, until recently the most bearish of buyout houses, has changed its tune. Less than two months after announcing in an August earnings call that it would not exit many assets in the near term, it has announced it is looking to float no less than eight businesses and sell another five. Said founder Schwarzman in a letter this month: "We see the world changing once again ... the worst is behind the industry."

Perhaps some advisers feel the frenzy is too good to be true. And what of these businesses post flotation? According to the unquote" IPO Tracker (page 48), post-listing performance is mixed at best. Among the top performers in the UK is oil business Wellstream, which Candover floated in April 2007 on LSE and whose share price has swollen an impressive 104% since IPO. It stands out as one of a tiny minority that are now trading above initial offer prices: among the worst-performing is specialty finance firm Davenham, which Dunedin floated in December 2005 on AIM and is now trading at around 97% below its offer price.

On a more positive note, the recent optimism should spawn more deal opportunities. Shored-up balance sheets and confidence (plus a sprinkle of the behemoth fiscal stimuli across the globe) have led to a surge of large-scale M&A activity: cellular giants T-Mobile and Orange are merging; Kraft is bidding $17bn for Cadbury - the list goes on. Such activity will create opportunities for private equity, either as buyers outright (Skype has again fallen into private equity's arms in a $2bn deal last month) or as buyers of smaller, less-core offshoots that such mega-mergers often generate.

Here's hoping that the end of the year will bring about not only a much-needed uptick in activity, but that it will be sustainable.

Yours sincerely,

Kimberly Romaine

Editor-in-chief, unquote"

Tel: +44 20 7004 7526

kimberly.romaine@incisivemedia.com.