“The public market does not understand rare, valuable creatures like us,” chief executive of Apollo Global Management Leon Black told the audience at the Bloomberg Invest Conference earlier this year. He is not the first private equity titan to express regret about the decision to list on the stock market.
At times in 2019, Blackstone and Carlyle Group have traded below their respective 2007 and 2012 IPO prices, Private Equity International noted in September. Oaktree Capital Management raised $387 million in its 2012 initial public offering, 25 percent less than it sought. It is now effectively being taken private again by another listed asset management firm, Brookfield Asset Management.
In this context, the September listing of EQT on the Stockholm Stock Exchange was almost miraculous. The firm wanted to raise more money in order to grow its business and to give clarity around succession. It also sought to create a more transparent governance structure and raise its profile on a global basis – all things a public listing can facilitate.
EQT listed with a valuation equivalent to €5.5 billion-€6 billion, compared with a guide price of €4 billion set by the bankers running the book. On the first day of trading its share price shot up 25 percent. At the time of writing, the share price was 80 percent above its IPO level.
The raises questions as to why listing appears to have worked for EQT and not for some others. Undoubtedly, EQT has a track record of good returns. Since inception, its private capital unit has delivered a 20 percent net internal rate of return and gross multiple of 2.4x, PEI noted in September.
The average age of an active EQT fund is only two years, one reason why only 2 percent of EQT’s revenue is made up of carry. This could be a concern; future performance is never guaranteed, even though carry was forecast to grow by up to 30 percent in the medium term.
Equally, it shows the firm has been able to generate stable revenues without being overly reliant on capital appreciation, a quality that appeals to public market investors. EQT has always been structured as a corporation, not as a partnership, a structure that again would be familiar to equity investors.
The decision to list in Stockholm also looks like a good one. It emphasised its close connection to its primary region, one in which the buyout market has performed brilliantly in recent years. It also allowed the firm to present itself as a champion of Scandinavian industry, not just another global private equity juggernaut. Other possible floaters should take note.