PE-backed ASX listings perform worse in 2014

Private equity-backed IPOs delivered lower returns than their non-private equity backed counterparts

In 2014,  Australia-based initial public offerings (IPOs) without private equity support outperformed private equity-backed IPOs on an average basis by 7 percent and on a weighted-average basis by 5 percent, data compiled by the Australian Private Equity and Venture Capital Association (AVCAL) shows.

The figures indicate a drop in performance by private equity-supported listings, which in 2013 had generated an average return of 22.5 percent.

IPOs in Australia were a highlight for the private equity industry in 2013, with the number of private equity backed-IPOs rising to their highest levels in five years.

Throughout the year, A$866 million ($812 million; €584 million) worth of private equity investments were exited via IPOs, with Quadrant Private Equity’s A$500 million listing of Virtus Health in June igniting positive sentiment for other GPs seeking an IPO exit, according to AVCAL and Ernst & Young figures released earlier.

Nevertheless, since the re-opening of the Australian IPO market in 2013, IPOs with the support of private equity firms achieved an average return of 10.3 percent and a weighted-average return of 16.9 percent, still outperforming non-PE backed IPOs by 3 percent and 4 percent respectively when counting the past two years.

The study, prepared with the help of global financial advisory firm Rothschild, also shows that both private equity-backed and non-private equity backed IPOs have significantly outperformed the benchmark Small Industrials Index for 2013 and 2014, with weighted-average returns beating the Small Industrials Index by 15 percent and 12 percent respectively.

“The results confirm the enduring value that private equity firms bring to the businesses they invest in. Of the private equity backed IPOs that have listed since 2013, almost three-quarters have seen private equity firms elect to retain a stake in the business post-IPO (with an average holding of over 20 percent), providing strong alignment of interests between incoming and existing shareholders,” Yasser El-Ansary, chief executive of AVCAL, said in a statement.

He expects the pipeline of private equity-backed IPOs to continue into 2015, which will “run in parallel with a pickup in new business investment activity”.

El-Ansary added, “For most private equity fund managers, the cycle has started to turn from divestments to acquisitions, which is good news for thousands of Australian businesses that benefit from access to the skills, expertise and capital that private equity managers can provide.

“The local industry has more than $6 billion to invest, which means there is a significant opportunity to put capital to work in businesses across a wide range of high growth industries in Australia and the broader region.”