On the up

The IPO market in Europe didn’t just return to life in 2010; it shot the lights out, according to the Centre for Managament Buy-out Research (CMBOR). Private equity-backed IPOs for the full year raised a total of €21.6 billion, a significant jump from the €676 million recorded in 2009 and a new IPO record, according to its latest report on European buyout activity, which is sponsored by Barclays Private Equity and Ernst & Young and published by PEI.

This is a significant development, given the fact that secondary buyouts (or “pass-the-parcel” deals, as they are frequently known) have frequently been cited by commentators as the prominent driving force behind the resurgence in private equity deal and exit activity. While it is true that the proportion of secondary buyouts has shot up over the last two years – in 2010 secondary deals accounted for nearly half the value of European buyouts – the phenomenal bounce in activity in terms of IPOs has proven that public markets, as well as private buyers,  are indeed interested in private equity-backed assets.
The rise in IPOs was also illustrative of the wider rebound in European exit activity. Overall the value of European businesses sold by private equity firms last year totalled €55.7 billion, the first time the annual figure has outstripped the total value of investments, according to CMBOR. Europe posted roughly €49 billion in buyout activity in 2010, more than doubling the approximate €18 billion deployed in 2009.

The extremity of the comeback was further reflected in an update issued by fund of funds investor HarbourVest Global Private Equity in January. Capital calls and distributions from the listed fund’s portfolio were higher than they had ever been before. “You are finally seeing the listed private equity fund functioning in the way it was intended, with distributions just outpacing capital calls,” HarbourVest chief financial officer Steve Belgrad told PEI at the time. “It feels like the industry has finally turned a corner.”

Limited partners expect the jump in distributions to continue through 2011, according to a survey commissioned by secondaries investor Coller Capital. About 66 percent of LPs surveyed said they expect a “significant increase” in distributions from their portfolios during 2011.

With more cash predicted to flow back into their coffers from GPs, Coller’s survey found more than one-third of LPs are reaffirming their confidence in the asset class, with the 34 percent intending to increase their target allocation.