IPO exits decline in the third quarter

Despite some record-breaking deals, private equity firms only managed to raise $5.7bn in the IPO market in Q3 2010.

The long-anticipated boom in private equity-backed IPOs has not yet fully materialized, according to recent research by financial services firm Ernst & Young, which revealed the industry floated a mere 28 companies in the third quarter, fetching a total of $5.7 billion.

The value of exits in Q3 represented a 34 percent decrease compared with Q2, and is the slowest period for private equity-backed IPOs since the third quarter of 2009, which saw $4.3 billion raised from 11 portfolio company exits.

“The flurry of activity in potential IPOs we saw earlier this year has all but disappeared, firms still see too much uncertainty and risk in getting the right valuation for an offering,” said Kiran Sharma, a private equity exit specialist at law firm DLA Piper.

Since the start of 2010, only 11 percent of private equity-backed floats managed to price above their expected range, with half pricing below, the research noted.

However, the largest deal of the year occurred in Q3 when MEG Energy, a Canadian oil sands company backed by Warburg Pincus, was floated for $678 million in July.

For Q3, 75 percent of exits took place in the Americas, where 21 portfolio companies garnered approximately $4.4 billion. In Asia, six exits captured $1.3 billion for firms, and EMEA posted just one exit, the listing of travel reservations company Amadeus backed by BC Partners and Cinven, which raised $29 million earlier this month.

However, on year-to-date, “PE-backed companies have raised $21.6 billion in 94 separate listings, a remarkable increase over the same period a year ago, when 17 companies raised $5.2 billion”, the research said.

London-based Apax Partners proved the most active firm for the quarter, realising a total of $1.4 billion from four exits. This past July, for example, the firm listed SMART Technologies, a provider of interactive whiteboards, ultimately raising $660 million. 

Private equity firms also placed 39 new filings for IPO exits in Q3, according to the research. The new filings will join earlier registered floats including Bain Capital- and Kohlberg Kravis Roberts-backed Toys R Us, which filed to raise up to $800 million. The two private equity firms are also behind what is expected to be the largest private equity-backed IPO this year: the listing of hospital chain HCA, which filed to raise up to $4.6 billion earlier this year.