UK IPO comeback may be short-lived

The IPO window provided an alternative exit route to trade sales and secondary buyouts for UK private equity firms in the second quarter of 2004 - but it’s an opportunity that may already have passed.

The UK IPO market has picked up: but a new report suggests the opportunity for private equity firms to cash in may be a fleeting one. 

According to figures from the Centre for Management Buyout Research (CMBOR), which is sponsored by Deloitte and Barclays Private Equity, 11 private equity-backed flotations were recorded in the UK in the second quarter of 2004, compared with none in the first quarter and nine in the whole of last year.

The IPO resurgence has helped the total value of private equity exits achieved in the UK so far this year reach £8 billion: just short of the £8.8 billion total for the whole of 2003. This increased level of activity has helped address the £35 billion backlog of investments in private equity portfolios that CMBOR said existed at the turn of the year.

However, the contribution of IPOs to this increase may be abating. “IPOs can often yield the highest returns for VCs, albeit with the cash locked in for a few years, so their comeback will bring much relief to the private equity market,” said Mark Pacitti, private equity partner at Deloitte.“ However, with the summer shutdown of capital markets and much liquidity used up in rights issues and acquisitions, it is uncertain whether the IPO window will remain open for much longer.”

The stock market’s new-found popularity had a knock-on effect on the number of public-to-privates in the UK in the second quarter, with a total of just four recorded during the period. Likewise, it had the effect of reducing the number of secondary buyouts during the quarter by 50 percent.

In terms of new deals, the UK market remained fairly stable in the first half of 2004, with the total value of deals reaching £7.9 billion, compared with £7.3 billion in the first half of 2003. “The total value of new deals is finally matching the value of exits, which will help prevent a further build-up of unrealised equity,” said Tom Lamb, managing director at Barclays Private Equity UK.