The Wall Street Journal
Private-equity-owned companies are expected to dominate the IPO landscape this year, thanks to improving stock prices and pent-up demand among funds wanting to exit from their investments.
With companies like gun maker Freedom Group Inc., online investment adviser Financial Engines Inc., and automated customer-service call provider West Corp. already on file to do initial public offerings, bankers say there is still room for other private-equity-backed companies to launch deals.
Funds run by Cerberus Capital Management LP, Blackstone Group LP and Bain Capital Inc. have a stockpile of companies they purchased in recent years.
Such businesses were essentially put into the freezer during the stock-market downturn that began in 2008, when few mergers or acquisitions were being conducted and IPO issuance withered.
As stocks rose in 2009, more private-equity shops decided the time was ripe to prep for public offerings, with a rise in such filings occurring after Labor Day.
"The private-equity bear has been asleep for a long time, and now it's waking up with a vengeance.
"The huge number of investments that have been made over the last seven years is being revalued based on the market's rally," says William B. Buchanan Jr., chief executive of Lazard Capital Markets
The percentage of U.S. IPOs that were "sponsor-backed" -- that is, private-equity- or venture-capital-owned companies -- rose to 52% in 2009, up from 22% in 2008, according to Dealogic. That is the highest level since the data-tracker began compiling IPO statistics in 1995. The majority of those sponsor deals, more than two-thirds, were private-equity-backed.
Most of that activity occurred during the final three months of the year, when private-equity firms stepped back into the new-issuance market after sitting out the volatile months of 2008 and early 2009; every one of the six deals that priced in December were sponsor-backed.
There are currently about two dozen sponsor-backed offerings awaiting debuts in the U.S.
Private equity hasn't traditionally been as big a driver of new-stock issuance outside of the U.S.
Such deals haven't ever reached more than 13% of global deal numbers in a given year, by Dealogic's reckoning.
But bankers expect some pickup in Europe in 2010, based on past private-equity investment patterns.
"Financial sponsors have been very active buyers in Europe in recent years, and they've watched the equity markets revert back to a semblance of normalcy.
"Also, valuations have trended back to more decent levels over the last few months. The IRRs on their investments are beginning to look respectable again, so potential exits and distributions to their investors are back on the cards," says Viswas Raghavan, head of international capital markets at J.P. Morgan Chase & Co.