PE-backed IPOs outperform in Australia

IPOs with private equity support in 2013 generated an average return of 22.5%.

Private equity-backed companies that list in Australia have tended to significantly outperform their counterparts with no private equity involvement beyond that time period, according to data compiled by Rothschild Equity Advisory and the Australian Private Equity and Venture Capital Association.

While returns of private equity- and non-private equity-backed IPOs in Australia have been consistent with one another over their first year of listing, as of 28 February 2014, private equity-backed IPOs listed since 2003 have returned an average 95 percent growth since listing, compared to a 2.2 percent decline in growth in the latter group.

However, the report conceded that private equity returns over the decade were positively skewed by some very strong cases, including JB Hi-Fi, Seek and Invocare.

Nevertheless, as of 28 February 2014, the average return for private equity-backed IPOs listed since 2003, adjusting for significant outlier performance, was 6 percent, compared to an 8.9 percent decline in performance from non-private equity-backed IPOs.

Yasser Al-Ensary, chief executive of AVCAL, said, “The analysis in this study puts to bed the view held by some in the marketplace that companies backed by private equity tend to underperform once listed on the capital markets – the data makes it very clear that’s simply not the case.”

Figures also showed that private equity-backed IPOs listed in 2013 achieved an average return of 22.5 percent to 28 February 2014.

“Given the strong IPO pipeline we’ve seen in the last six months, this research has important implications for retail and institutional investors in how they view private equity-backed IPOs in the future,” head of Rothschild in Australia, Stuart Dettman, added.

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.