Hype Springs Eternal: PE-Backed IPOs Are Not Always Happy Events
The excitement surrounding buyout-backed IPOs is heartening at best and over-hyped at worst. Even though companies have steadily filed for IPOs for the past ten weeks (the longest streak in over a year), some industry professionals believe the market recovery won’t heal most private equity wounds. “The idea that going public is a panacea for private equity guys is not really true,” said Dan O’ Donnell, the private equity chair at law firm Dechert LLP. Even with a successful portfolio company IPO, a buyout firm faces the same issues it did before, including frustrated limited partners, he said. That’s because an IPO does not translate directly to cash in the LP’s pocket, like a sale to a strategic buyer would. “Absent a dividend recap, it’s unlikely that the sponsor will be able to do a direct cashout,” O’Donnell said. The private equity firm is typically left with a large, somewhat illiquid position that it will gradually exit over time.
