Trade sales make roaring start to 2010

Deborah Sterescu
03 March 2010

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While many companies are still waiting in the IPO wings, trade sales seem to be the preferred exit option in the UK these days. Deborah Sterescu investigates

Encore Ventures and MTI Partners' $330m sale of orthobiologics company ApaTech to Baxter International marks the fifth trade sale in the last two weeks, indicating that this type of divestment has the potential to account for most exit activity in 2010, despite a highly anticipated spate of IPOs. Statistical evidence backs this up: so far this year, unquote" has recorded 17 trade sales in Europe versus nine secondary buyouts and a single IPO, namely the Médica flotation in France (see graph).

This is somewhat contradictory to those great expectations at the beginning of the year, which highlighted the potential for public listings in 2010 as a result of the rally in the stock markets. Delayed and cancelled flotations, however, such as Travelport, New Look and Merlin, have led many to reconsider their best laid plans as institutional investor appetite is dissipating. The performance of the last sizeable IPO, the Hellman & Friedman-backed Gartmore flotation, is certainly not encouraging; the business floated at 220 pence, down significantly from its target price range of between 250-330 pence, and is currently trading around the 185 pence mark.

One investor explained that an IPO is usually an unlikely alternative to a trade sale as the markets are often too difficult to predict. Adding to this, management is typically locked up in an IPO scenario for a significant period of time and once the company is on the public market, it is obliged to report quarterly and is subjected to greater regulation and pressures than ever before. Says one lawyer: "Management can often find that the valuation of the company is affected by factors completely outside its control." Trade sales have also seen investors reap sizeable returns: aside from the ApaTech homerun, Endless recently scored a 10.5x return on the £10m sale of its heavy engineering business DavyMarkham to India-based IVRCL.

Yet another sign of the reviving exit market is the surge in secondary buyouts seen in recent months. Barclays Private Equity is the latest example of this with its £325m sale of skincare company Deb Group to Charterhouse Capital Partners, announced today. The investor managed to achieve a 5.7x return on its original £32m investment.