Gains in private equity-led listings fuel investors' demand- report

December 27
10:25 PM 2013

A Financial Times report said the 18.6% rise in the shares of private equity-backed listing this year will stimulate the demand of institutional investors as more IPOs are being planned. Data gathered by EY consultants for the FT showed that the average weighted average performance for private-equity led flotations in 2013 underperformed the other kind of IPOs by 4 percentage points as of December 17. However, the difference is almost negligible, save for the Twitter whose stock has increased by over two times since it debuted in October.

The report said the gains will help improve the once thorny relationship of managers of private equity funds and institutional investors who often view managers as sophisticated and aggressive sellers of companies. This year, the robust demand for equities has led to a wave of private equity-backed IPOs. However, bankers say that post-IPO performance is also a concern of buyout firms at this time. For some of the biggest leveraged buyouts that were closed in the boom years, a public share sale is geared towards lowering debt than being able to sell stock on the first trading day, the report said.

Barclays Co-Head of Financial Sponsors Coverage for Europe Ken McGrath told FT, "This time around, many of the successful IPOs, and those which are being contemplated for 2014, are delevering events. You had a difficult dynamic before the crisis, when private equity groups used to sell down and try to maximise the price of the IPO. Today, it's much more, 'look, it's a path to a monetisation, it's not crystallising the value on day one.'"

The report cited hotel group Hilton backed by private equity firm Blackstone which held the second largest IPO in 2013, raising $2.4 billion to pay back debt. Blackstone did not sell shares in the debut and Hilton's stock has now risen 8.5%.

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