New year kicks off with healthy volume of European PE-backed IPOs

European public markets may have seen a rocky January on the back of lingering global macroeconomic concerns, but this doesn't seem to have stopped private equity sponsors from launching IPOs.

Between January 1 and early February, unquote" recorded nine listings of European portfolio companies worth a combined €5.1bn – figures that compare favourably with the 12 IPOs worth €9.7bn seen over the whole of Q4 last year. More importantly – and provided this early momentum carries onto the coming weeks – it means the comparison with the more buoyant Q1 2014, which saw 19 listings amounting to a combined €15.2bn, should not be too unflattering. In fact, the month of January 2015 alone was more active than the corresponding period in 2014, when GPs appeared much more reluctant to tap into the public markets so early in the year.

Notable listings to have taken place in recent weeks include that of CVC-backed Sunrise Communications, which listed on the SIX Swiss Exchange with a market capitalisation of €3.06bn in January. Exponent-backed HSS Hire, a UK-based industrial tools and services supplier, also listed with a market cap of £325m – although the business didn't fare as well post-IPO (see "Where are they now", below).

The reasonably healthy level of IPO activity so far this quarter shows private equity sponsors have not deserted the public markets following the swift change of mood among investors in Q3 last year. "The window was open in the second half of last year and is open now. The reason there were fewer IPOs announced and why some were delayed into 2015 was that market volatility in October and November 2014 and reduced/negative inflows into equity funds put downward pressure on valuations that fund managers were prepared to pay for businesses at IPO," says Piers Coombs, managing director and head of UK equity capital markets at Canaccord Genuity.

"In the current market environment, there are still some big macro concerns, but fundamentals at a corporate level are sound – particularly for those with North American- or UK-biased earnings. The window is always open for businesses that can evidence high-quality growth, a differentiated case and sensible expectations for valuation at IPO," he adds.

Queuing around the block
The number of private equity-backed IPOs currently in the pipeline is testament to GPs' confidence in their ability to fit this bill. In the UK, Advent International-backed DFS Furniture announced its intention to float on the London Stock Exchange; the GP will make a partial divestment through the offering, which is expected to value the UK retailer in the region of £1bn. Even New Look, which had already considered an IPO in 2010 as Apax and Permira were looking for a way out, before backing down, is expected to hit the market at some point, although plans have yet to materialise.

Another upcoming UK listing is worth keeping an eye on, despite a market cap unlikely to make headlines: Alchemy Partners* portfolio company Revolution Bars is due to list in March, in an offering that will only comprise new shares. The IPO should be a good test of investor appetite for flotations in which the private equity sponsor divests a large stake – GPs not keeping skin in the game being a common criticism levelled at pre-crisis IPOs.

Meanwhile, on the continent, OVS Industry, an Italian clothing retailer owned by BC Partners-backed Coin Group, is also gearing up for a float on the Italian stock exchange. The offering will mainly comprise new shares and, at the top of the indicative pricing range, would value the business at more than €1.2bn.

Euronext Paris should also see a healthy slice of the IPO action as the year goes on. A recent loosening of the requirements for a listing could entice more GPs to try their luck – the list of changes includes the ability to offer a wider initial price range before narrowing it closer to the offering, as well as the possibility to write the prospectus directly in English to better attract international investors. Eurazeo is one private equity house that intends to make the most of the momentum: portfolio company Elis listed in early February with a market cap of €1.48bn, and the GP is also set to float Europcar in the second quarter, with a market cap that should comfortably exceed the €1 billion mark.

Given the mercurial nature of the public markets, many private equity sponsors will be keeping their cards close to their chests though. "Financial sponsors are still very much considering IPOs as an alternative exit option. However, where there were six IPO processes last year in the UK that resulted in a sale instead, this year we will see more, as dual-track processes become more prevalent," predicts Jacques Callaghan, deputy head of European investment banking at Canaccord Genuity.

A number of recent deals have indeed seen assets forego a once-likely IPO for the comfort of a straight sale. Trainline was one high-profile example – despite announcing its intention to float just two weeks prior, the Exponent portfolio company was acquired by KKR for around £500m at the end of January. A couple of months before that, Altor sold Swedish pharmacy chain Apotek Hjärtat for an enterprise value of SEK 5.7bn to supermarket group ICA Gruppen; the company had revealed its IPO preparations in June 2014, and the process went so far as to have been approved by the regulatory committee of the Stockholm stock exchange in November.

Early signs are therefore positive, and the pipeline is reasonably well-stocked. That said, the exceptional flurry of listings witnessed in the first half of 2014 will be hard to replicate. The IPO fatigue that set in last year may not have closed the window entirely, but Coombs believes investors will certainly be pickier when it comes to which businesses will get their capital. "Investors are very focused on liquidity, as even a number of quite sizeable IPOs from last year have seen lower than ideal daily trading volumes, so there is a greater pool of investors who will be open to mid-cap businesses versus small-cap, as well as those companies aiming for a larger free float," he says. "There is also a noticeably increased focus on yield, and those that are able to deliver secure, above-market rates of dividend are well placed."

*Alchemy Partners is a majority shareholder in Incisive Media, the publisher of unquote"

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Exits
• Nordics
• IPO
• KKR
• CVC Capital Partners
• Exponent Private Equity
• Advent International
• Alchemy Partners LLP
• Apax Partners
• Permira
• Altor
• Top story
• Unq2015Mar