The importance of Private Equity backed IPOs for the public markets

by Lucy Tarleton UK Capital Markets Director​

Email +44 (0)7701 295718

In February 2018, we hosted a breakfast forum for a number of London and South East Private Equity (PE) backed management teams, focused on preparing for exit, building on this we have considered the trends for PE in the IPO space.

In the last two years, as the private sale route has won out over the public markets, we have seen private equity IPOs across Europe and the UK reduce as a proportion of the overall IPO activity.  Despite this recent drop in PE IPO activity, private equity remains a key driver of the London market and we have recently seen the completion of the sizeable IPOs of petrol station chain, Vivo Energy, and cyber security group, Avast.

The current level of PE IPO activity is in stark contrast to 2014 and 2015 when PE IPOs dominated the market and we saw the likes of the mega-IPOs of Worldpay, Auto Trader, AA and B&M European Value, all successfully join the public markets.

With the public markets frequently in competition with valuations from the private sector and the prospect of selling shareholders retaining a significant stake following an IPO, dual-track processes are now increasingly common. The dual-track process is also attractive as it can help shareholders and issuers reach a successful outcome while hedging against the volatility in public markets.

In 2017 we saw a number of dual track exits in which a sale was achieved rather than an IPO - For example - TMF’s sale to CVC Capital in October, CPA Global’s sale to Leonard Green in August and Logicor’s sale to CIC in June. This trend has continued and earlier this year we saw Motor Fuel Group, backed by Clayton, Dubilier & Rice, acquire Lonestar-backed MRH for £1.2bn and more recently CVC-backed Skybet was acquired by the Canadian group, The Stars Group.

We recently supported the BVCA with the publication of The UK Private Equity IPO Report which provides a historic analysis of private equity-backed and non-private equity-backed flotations in the UK between 2009 and 2017. It looks at a number of metrics including the use of proceeds, pricing and performance of PE backed IPOs to build a picture of the key trends in the IPO market. The aftermarket performance is particularly revealing as it shows that PE IPOs are trading on average 43.9% higher than their offer price compared to 26.6% for non-PE floats for the period from IPO to 31 December 2017. This performance is in evidence even after just 12 months, with PE IPOs 22.6% up on their offer price after a year compared to 20.3% for non-PE listings.

In addition, the top ten PE IPOs between the beginning of 2009 and end of 2017 raised 37% of the total PE proceeds during that time, the largest offering being Worldpay which was also the largest PE IPO in London on record, raising more than £2bn.

The IPO market still remains open to companies with attractive equity stories and a proven track record of growth and we would expect the number of PE backed IPOs in 2018 to be in line with that seen in the last two years.

For further analysis and comment, please see our full IPO report. Our next PE forum, for PE backed management teams is over a BBQ on the 13 June - if you would like to attend please contact [email protected].

by Lucy Tarleton UK Capital Markets Director​

Email +44 (0)7701 295718