“Strong global equities markets, rising investor confidence and increased macroeconomic stability are leading to another record year of PE-backed IPOs,” says Ernst and Young’s quarterly study titled “Private Equity, Public Exits Q2 2014 Digital edition.”
Strong PE-backed IPOs trend during Q2/H1 of 2014
The study found that, driven by a clutch of positive factors such as a vibrant equity environment in the Americas, a recovery in the EMEA region and a resurgence in IPO floatation in mainland China, PE backed companies have managed to raise USD $ 55.9 billion in 134 deals in the first half of 2014.
That’s within handshaking distance of the amount of US dollar $ 58.5 billion raised in 187 deals during the whole of 2013.
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From the graph above, it’s clear that fundraising during the second quarter was dramatically higher than the first quarter of 2014, pointing to heightened investor interest providing a favourable reception to PE-backed IPOs.
Not surprisingly, the flood of issues has also generated lucrative fees for investment banks, which earned about $1.3 billion in fees year to date, more than double that of the $498 million they earned last year in the same period, according to Dealogic. However, returns for investors have been not so great – PE-backed IPO shares are up only 8.1% compared to 25.9% of shares of IPOs not backed by PE.
EMEA deals leapfrog four times versus last year
This is highly significant – PE-backed IPOs during Q2 2014 in Europe, Middle East and Africa (EMEA) jumped four times compared to the year ago period, says the EY study.
In Europe, however, the boom in issues has been marred by apparently poor profit projections or improper diligence in preparation of issue documents. eDreams Odigeo, backed by Permira and Ardian, and Applus, the Carlyle-backed inspection group, both issued profit warnings soon after listing.
PE-backed IPOs secondary offerings also showing strength
According to the EY study, secondary offerings are not doing too badly either – follow-on offerings by PE firms raised $58.9 billion on 178 deals.
In more ancillary evidence of the robust equities scenario, the Ardian Secondary Fund VI, a private equity fund, raised USD $ 9.0 billion against its original target of $ 7.0 billion, becoming the largest secondaries fund to close in history.
Overall, 2014 should see a solid volume performance by PE-backed IPOs.
“After years of stop-and-start activity, investors are clearly favouring a risk-on stance, allocating significant portions of their portfolios to new issues,” says the study. “Barring any systemic disruptions, year-end volumes might even double last year’s record activity.”