Twin IPOs show public markets are back in favour

Two private equity-backed IPOs this week have demonstrated that despite volatile public markets, it is possible to exit businesses via a flotation and still generate a return.

The listings of receivables management company Kruk on the Warsaw stock exchange and Zipcar on the New York Stock Exchange showed the public markets are again becoming a viable exit route for private equity and venture capital investment groups.

They followed 3i Group’s flotation of engineering company Norma Group on the Frankfurt stock exchange earlier this month. The Norma IPO valued the shares sold by 3i and its remaining holding at 5.5x the price it paid for its holding in the business.

The flotation of Polish company Kruk yielded an even more impressive return for its private equity backer, Warsaw-headquartered venture capital firm Enterprise Investors. The firm sold a 50 percent stake in the company as part of the IPO, delivering an eight times return for its Polish Enterprise Fund IV. The shares priced at the top of their range at PLN 39.7 (€10.05; $14.65) per share, yielding gross proceeds of $116.7 million. The IPO was heavily oversubscribed, according to Enterprise.

Enterprise said it decided to retain a 24.8 percent stake in the company. In total, it said it had invested $21.5 million in the company over several funding rounds. Its first investment in the company was made in 2003. Enterprise said Kruk had enjoyed a five-fold increase in net profits between 2003 and 2010, with sales increasing from PLN 32 million to PLN 164 million.

Another firm to have celebrated a successful IPO is Smedvig Capital. Its portfolio company, car-sharing business Streetcar, was acquired by US peer Zipcar last year, with Smedvig retaining a stake in the combined business. Zipcar’s IPO last week meant Smedvig booked a six times return on its £6.7 million investment in Streetcar.

Johnny Hewett, chief executive of Smedvig, said: “In the sort of challenging environment that all have faced in the last few years, it is refreshing to see an outstanding success for British entrepreneurs. Streetcar’s rapid growth stemmed from a committed management team with a very clear focus on delivering an excellent customer experience. 

Thursday's IPO underlines how an ambitious team, a great product and a big market opportunity coupled with growth capital from the right VC firm can deliver outstanding results,” Hewett said.

Zipcar’s shares soared in value by almost 70 percent immediately after its flotation, raising accusations that bookrunners Goldman Sachs and JP Morgan had under-priced the shares. As of Thursday, its shares were trading at $28.72, a 60 percent premium to the list price of $18. 

Some firms remain unconvinced by the public markets as an exit route however. Buyout firms CCMP Capital Advisors and Unitas Capital shelved plans earlier this month to list microelectronic device manufacturer Edwards on the London Stock Exchange, according to an Edwards statement.

UK-based Edwards said in March it was planning a flotation as “the natural next step” in its development, but in a statement earlier this month it said it had decided to halt plans “given equity market uncertainty”.