GO
Loading...

Why the EM pallor could take the shine off IPOs

The sell down in emerging market assets from equities to bond markets has had investors withdrawing money at speed and it may not be over yet, with Nomura analysts saying the vicious selling doesn't mean it's a crowded trade.

STRDEL | AFP | Getty Images

Stepping away from the herd, though, is private equity, and perhaps it's a better view from atop a huge pile of cash.

Last year these cash hoarders scoured the globe for worthy assets but were dismayed at lofty valuations which showed no sign of abating through to year end. But with major stock markets down, the opportunity is ripe for the industry to wade back in.

(Read more: Rout overdone, emerging markets to 'turn' this year)

Despite last year being a buyer's market in terms of debt availability, global private equity buyouts were broadly flat, up just 0.4 per cent on the previous year according to MergerMarket data. Asia Pacific had the highest buyout activity in the final quarter. 2014 still presents a buyer's market with plenty of cash and debt to tap, which suggests emerging market woes and concerns around Federal Reserve tapering could tilt the deck nicely in private equity's favor.

Industry insiders believe the emerging market ructions and Fed talk are simply not dominating private equity discussions like they are elsewhere. Meanwhile money managers are again grimacing as earnings season exposes the pain on quarterly accounts from falling emerging market currencies. But for private equity these large devaluations in exchange rates are not impacting deal multiples; even though the ticket price may be cheaper, profits are also lower. The increasingly bearish sentiment though lessens competition from public companies as shareholders demand dividends instead of risky acquisitions.

(Read more: Will emerging markets become a euro zone-style risk?)

European private equity houses were already scaling up outbound transactions in the last quarter of 2013. According to MergerMarket, deal value in the final three months of 2013 leapt 75.2 percent from the previous year.

The stunning stock market rally in 2013 also had private equity managers neatly packaging up assets for exit, in a year that saw many old names lighting up the big boards again as IPOs staged a comeback. Data by MergerMarket indicate the fourth quarter saw 458 private equity exits, worth 18 percent more than the previous quarter. But the mode of exit could change this year.

(Read more: Will China be the 'savior' of emerging markets?)

Less certain times for stocks after a bad start in January could pave the way for more private sales and take the shine off IPOs as a route of exit. Advisers working on parallel sales could ultimately decide on a quick, clean exit through a secondary buyout instead of the heartache of an IPO if the stock market doesn't promise outsized returns like those witnessed in 2013. An IPO typically means more regulatory hurdles to cross and private equity remains cuffed to the sale for a couple of years. Volatile markets threaten to pour cold water over the IPO revival that many insiders were already questioning the longevity of in 2013.

Karen Tso is an anchor for SquawkBox Europe on CNBC. You can follow her on Twitter @cnbckaren

Contact World Economy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    To learn more about how we use your information,
    please read our Privacy Policy.
    › Learn More