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'Beware' the UK IPO flurry fueled by private equity

London Stock Exchange
Scott Barbour | Getty Images
London Stock Exchange

The U.K. IPO market is in rude health, as Pets at Home and Poundland officially start trading, but analysts warn investors should be wary of "opportunistic" private equity firms offloading firms as market sentiment rides high.

The retailers are the latest firms to jump on the IPO (initial public offering) bandwagon, as London Stock Exchange (LSE) IPO volume has peaked at its highest level since 2007. Retail IPOs account for an impressive 69 percent of total LSE IPO volume, according to Dealogic.

(Read more: Boom in UK IPOs led by 'bricks and clicks')

Pets at Home, the pet accessories retailer and discount store Poundland are owned mostly by U.S. private equity groups. Kohlberg Kravis Roberts picked up Pets at Home four years ago for £995 million ($1.65 billion) and the IPO has valued the chain at £1.23 billion.

Warburg Pincus paid £200 million for Poundland in 2010 and the firm has since priced at the top of its initial range, valuing the group at £750 million.

U.K. fund manager George Godber said he doesn't do much with IPOs as it is often very difficult to work out why the private equity seller is selling.

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"Valuation is key and some of these are not coming at good valuations. It is very difficult – I personally shun them, I don't like the information mismatch," Godber, a fund manager at Miton Group told CNBC.

(Read more: UK IPO market about to get another boost)

"I think Poundland is a fabulous business, there is no doubt the chief executive there is a class act and that business will go from strength to strength, so I am not surprised how well those shares have traded since their listing. Some of the others I am little bit more skeptical of," he said.

Rumors that luxury shoe designer Jimmy Choo is eying a £1 billion London listing also swirled on Monday, but the firm said no decision has been made yet.

"Jimmy Choo is a clear success story with strong momentum and we regularly review the status of our investments. No decision has been taken," a spokesperson for Jimmy Choo told CNBC.

(Read more: UK scientists launch IPO for latest 'wonder material')

Market strategist at ETX Capital, Ishaq Siddiqi said the last few years have been difficult for private equity and challenging market conditions have tarnished the outlook for some of their investments, so there is more pressure to "offload" some of their assets.

"You can say that PE (private equity) firms like KKR are being opportunists here, disposing at a time when they can finally deliver long-awaited returns. Add in the fact that Royal Mail's controversial IPO last year raised general awareness in the public through the media hype, for PE firms, it couldn't be a better time to sell off their stakes," he said.

"Overzealous investors should be prudent about IPOs for companies being offloaded by PE firms for the reason that a PE firm would not look to sell businesses that they believe are profitable," he said.

Standard & Poor's Ratings Services said buoyant equity markets have a lot to do with the IPO market revival, but pent-up demand in the private equity owners, who are taking advantage of investor appetite is also a key factor.

Credit analyst and report author on the resurgence in European IPOs, Taron Wade said while the boom in IPOs was private equity driven, we are nowhere near the pre-financial crisis highs.

"We are still at the beginning of this cycle – we are nowhere near where we were in 2006 and 2007. IPOs at that time were around $36 billion, last year we only saw $13 billion and that is – if you look at the last 10 years - actually at 10-year average," Wade said.

By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave

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