Private equity firms are using buoyant equity markets to take more of their portfolio companies public, including some of the more highly leveraged holdings that investors balked at in the past.
Such “exits” are on track to represent the highest proportion of US and global IPO deals in at least a decade, according to Dealogic. The 36 private-equity backed deals globally so far this year, raising $6bn, represent 35 per cent of all IPO deals globally so far. That is the most since 2000.
In addition, secondary sales of shares in recent private-equity backed IPOs, such as Dunkin Brands and Dollar General, are also tracking at unusually high levels, with 55 deals globally raising $18bn, or 14 per cent of all secondary proceeds, according to Dealogic, also the highest share in over a decade.
Buoyant equity markets, where investors have begun to take on previously shunned riskier sectors, such as banks and highly indebted companies, have given private equity firms a window to exit current holdings and raise more funds for new investments.
“We expect to see a continued wave of private equity-backed IPOs, given the improved market environment and how well recent IPOs have traded,” says Frank Maturo, head of Americas cash equity capital markets at Bank of America Merrill Lynch.
According to Prequin, the private equity data provider, there are currently 68 firm-backed companies that are filed to make initial public offerings in the US. At the same time, firms are raising $126bn in US buyout funds this year, the most since 2009.
The deals also come as two private equity firms, The Carlyle Group and Oaktree Capital Management, are set to go public. Oaktree has filed to raise up to $517m in a share sale this month, and Carlyle is expected to launch its roadshow this year.
The biggest IPOs in the US and Europe, both private equity exits in March, have seen strong post-IPO trading. Ziggo, the Dutch cable company backed by Warburg Pincus and Cinven, is up 10 per cent since its IPO started trading to €23.40. Allison Transmission, backed by Carlye and Onex Corporation, is up 6 per cent to $24.71.
As a result, more large IPOs are on the way. Oaktree’s Aleris Corporation, which had initially filed to go public a year ago, hopes to raise $531m this month. Michaels Stores, the arts-and-crafts retailer backed by Bain Capital and Blackstone, aims to raise $500m later this year.
But the deals are also making concessions, such as selling fewer shares. MRC Global, an energy pipeline company backed by Goldman Sachs’ private equity arm, filed with regulators to raise $100m, sharply less than the $750m it set out to raise in 2009.
“As we look at the nice run in public markets, you’re seeing private equity firms look for any way they can to get some exits,” said Scott Higbee, partner at the Partners Group, a global private equity investment manager.
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