IPOs "not best option" for private equity

Amy King
05 March 2013

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While trade sales and secondary buyouts have been the most favoured exit route for private equity players, 2013 has seen renewed enthusiasm surrounding the public markets. Amy King reports from an ICAEW seminar on the IPO market

In recent months, several private equity firms have taken the initial steps towards a listing: Penta Capital has confirmed insurance business Esure will list on the London Stock Exchange, CVC is planning to place shares in German chemicals specialist Evonik and Oaktree confirmed Countrywide will list in London in the near future. Bravely defying political turmoil in Italy, Syntegra's Moleskine will list in Milan this month, hoping to raise upwards of €300m. But is this an emerging trend or a lot of hype, and is this route the best option for private equity players?

"I think there will be opportunities," said Gervais Williams, managing director of Miton Group, "but the pattern is that institutional investors are reluctant to pay the high multiples required by private equity. There is a real suspicion there. I think the private equity players will often find more attractive exit opportunities than the listed capital markets," he added.

While the anticipated return of IPOs in 2013 could be an important component in building trust in the private equity industry and, potentially, widen the exit opportunities for those GPs seeking to draw current funds to a close ahead of fresh fundraising, it seems that in many cases this may be overly optimistic.

Not though, for tech companies, said Tim Stocks head of financial institutions and markets in the UK at Taylor Wessing: "Activity in the tech sector in the last few years has involved private equity companies buying tech firms, not the listed markets. So a lot of private equity funds have a number of tech firms in their portfolio companies, many of which are following buy-and-build strategies. I think that in late 2014-2015, we will see private equity players returning and selling firms to the new issues market. I do see that trend."

But we are not quite there yet, according to industry professionals at the seminar. Tech IPOs have often been considered a measure of the wider IPO market, and they are nowhere near as frequent as they were in the pre-crash heyday.

"You really need the volume of tech IPOs to pick up. That's when you really know that IPOs have picked up," said Paul Harvey, head of technology investment banking EMEA at Bank of America Merrill Lynch. "We sense an improvement, but we aren't back to where we were," he added.