Signs of a thaw in Avago IPO

The semiconductor company, owned by KKR and Silver Lake, is one of several public offerings planned by private equity sponsors.

As Kohlberg Kravis Roberts and Silver Lake prepare to list portfolio company Avago Technologies through a public offering Thursday, private equity market participants everywhere are hoping this is the beginning of a bullish trend.

The public float on Nasdaq is expected to value the electronic components company at more than $3.2 billion.

KKR also is reportedly preparing the take public its portfolio company Dollar General. Meanwhile, Fortress Investments has filed for a $300 million IPO of its portfolio company, Rail America.

Bob McCooey, Nasdaq’s head of new listings and capital markets, told PEO he noticed improvement in the market in April when OpenTable, a venture-backed online restaurant reservation service, debuted far above its offering price of $20, closing at $31.89 in its IPO on Nasdaq. Although market sceptics expect a price decline over time, at the close of the market on Tuesday OpenTable shares were trading at $30.79 per share.

“Since the OpenTable IPO back in April, the market for IPOs has tremendously rebounded in both the number of actual companies coming to market as well as the filings,” said McCooey. “Last Thursday there were three IPOs that listed in one day – compare that to the fourth quarter of 2008 when there was one IPO for the entire quarter. So in absolute numbers, in momentum, in filings, in every way we’re really seeing the market come back. The [IPOs] that have priced so far this year are trading well, there’s good liquidity, they’re trading up, the market continues to stay stable.”

“I think we will see a number of the large private equity firms begin to prepare their companies, or continue to prepare their companies, for exits through IPO,” McCooey added.

The slight uptick in IPOs for private equity-backed companies is a very welcome sign, especially for bigger firms, who for the most part are unable to finance the sale of portfolio companies through M&A exits. Some of the largest buyout firms, “by virtue of their absolute size are entirely dependent on IPO exits,” a source from an investment banking services firm revealed.

Not surprisingly, three prominent private equity-backed IPOs have recession-resistant characteristics. Dollar General, a discount retailer, has thrived in the market downturn as consumers have sought to be thrifty. The company reported sales of $10.5 billion in the 2008 fiscal year, an increase of 10.9 percent.

RailAmerica, a shortline railroad acquired by Fortress in 2007, also is seeing demand for its IPO despite the recession, in part because railroads are seen as vital means of transport for raw materials such as agricultural products and coal.

Avago Technologies, acquired in 2005 by KKR and Silver Lake Partners for a reported $2.66 billion, manufactures and distributes its products across a wide range technology sectors. The global company also has an intellectual property portfolio of more than 5,000 patent applications.