Private Equity Groups Renew Listing Plans

Weak US Earnings Cast Shadow Over Risk Appetite
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More than a dozen offerings this year have rekindled private equity groups' hopes to list some of their largest assets bought during the bubble. The initial public offering of Intelsat on Thursday shows that it is feasible, but can also be painful.

BC Partners and Silver Lake, the private equity owners of the satellite operator they bought for $16.5 billion in early 2008, discussed pulling the listing earlier this week, as they reckoned they wouldn't get the price they had sought from investors following jittery markets in the wake of the Boston marathon bombings on Monday.

The buyout groups eventually decided to go ahead, but with a much smaller offering to limit dilution, according to a person with knowledge of the process.

"Even if the outcome wasn't maybe the best for them, the fact that they have been able to list at all is an achievement," another person familiar with the Intelsat listing said.

Private equity groups are rushing to revive plans to list the companies they own amid recovering equity markets and lower volatility, after the euro zone crisis hampered their ability to use that option to exit deals last year.

Risk appetite has been stoked by the widespread bond market interventions by central banks late last year, prompting institutions to turn to equities again early this year.

"Financial sponsors have been uncertain about their ability to float their companies in the last few years, but they are now seeing that deals are working as long as the pricing is reasonable," says Alasdair Warren, European head of equity capital markets at Goldman Sachs.

This year, buyout houses have listed 17 companies, including nurseries operator Bright Horizons and Italian notebook maker Moleskine, on both sides of the Atlantic. The recovery has been more striking in Europe, with six private equity-backed IPOs so far, compared with only five for the whole of last year, according to data from Thomson Reuters. Groups have raised $1.85 billion in Europe, up from $1.6 billionn for the whole of 2012.

Most of the deals so far this year have outperformed the wider markets. The top 10 deals are now up an average of 12 per cent, compared with a 6 per cent rise in the MSCI World Index, according to data from Dealogic. In 2012 nearly half of the top 10 IPOs had lost money by the end of the year.

The S&P 500 index is up 9 per cent this year, although the index has sold off somewhat in recent days following bleak growth figures from China. The Eurofirst 300 index is up only 1 per cent after being hit by China figures and also a flare-up in the eurozone debt crisis over the bailout of Cyprus.

The pipeline of private equity-backed IPOs is therefore growing. Blackstone is weighing a New York listing for theme park operator Merlin, the owner of the London eye, while KKR and Goldman may opt for an IPO for German forklift maker Kion, which they bought for €4bn in 2006.

Stockholm-based group EQT is considering an IPO for German academic publisher SpringerScience. Carlyle, Cinven and Altice are exploring an IPO of their jointly-owned French cable company Numericable, while Warburg Pincus is working on a listing of contact eyecare group Bausch & Lomb.

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However, bankers caution private equity owners may have to adjust their pricing anticipations. Doughty Hanson listed cable ties manufacturer HellermannTyton based on a valuation of 6 times earnings before interest, tax, depreciation and amortization, allowing the London-based group to make just twice its money.

Some bankers are voicing concerns that some of their competitors are promising "insane" pricing in order to get the mandates.

"There are signs the window is open, but a lot of private equity firms need to get over the hurdle of valuations," a senior banker says.

"It would only get a few deals that taint the market for the window to shut down," another says.