IPO queue lengthens as take-privates dwindle

In a reversal of recent trends, the UK private equity market appears poised for a significant increase of IPOs at the same time as public-to-privates lose popularity.

The public-to-private buyout looks set to decrease in popularity following tension between sellers and buyers, but IPOs appear to be on the up.

A plethora of private equity-backed companies are reported to be in line for flotations on the London Stock Exchange. Among them are: Cantrell & Cochrane, backed by BC Partners; RHM (Doughty Hanson); Focus Wickes (Duke Street Capital); Civica (Alchemy Partners); Halfords (CVC Capital Partners); and Eircom (Soros Equity Partners and Providence Equity).

In addition, Doughty Hanson is reported to be preparing a €1.5 billion ($1.9 billion) flotation in Germany of ATU Automotive, the German car parts business it acquired less than two years ago for around €1.3 billion. A spokesman for Doughty Hanson declined to comment on the report, which if true could provide a boost to its current fundraising.

Chris Hale, managing partner at London-based law firm Travers Smith Braithwaite, said his firm currently had nine IPO instructions – which he added was nine more than at this time last year. He said brokers are “buzzing” and feel that the IPO window will remain open until at least May or June. He also said there is now an appetite for businesses worth as little as £100 million if they can prove they have a particularly interesting angle, unlike the minimum level of around £750 million a few months ago.

According to official figures from the London Stock Exchange, 86 IPOs raised £4.5 billion in 2003 (20 on the main market and 66 on AIM) compared with 97 that raised £5.3 billion in 2002 (37 on the main market and 60 on AIM).

But while the stock market could prove a welcome source of exits for private equity firms in the months ahead, it is unlikely to provide as many new deals. According to figures from Nottingham University’s Centre for Management Buyout Research, last year saw an increase in public-to-privates to 35 (accounting for 26 percent of total buyout activity) from 22 in 2002 (18 percent of the total).

But Hale says he has seen a marked decrease in PTP activity as private equity firms fight shy of paying the substantial premia increasingly demanded by institutions. Last year saw a number of stand-offs between financial buyers and large shareholders, including at Pizza Express and Fitness First, where institutions ended up retaining stakes post-deal completion after refusing to sell at what they saw as too low a price.                   
Hale adds that such situations have led to discussions about a new type of transaction dubbed the “partial private” which would enable institutions to retain an equity interest in the target company through the use of a financial instrument listed on AIM.