Initial public offerings are back on the agenda for several PE and VC firms sitting on exit-ready portfolio companies.
Sponsor-backed IPOs contributed much of European IPO volume this year, including through Tikehau-backed Eurogroup Laminations [BIT:EGLA], Apollo Global Management [NYSE:APO]’s Lottomatica [BIT:LTMC], Helios-owned CAB Payments [LON:CABP] and the USD 1.48bn US IPO of L Catterton-backed Birkenstock [NYSE:BIRK].
However, despite the handful of deals so far, European sponsor-backed IPOs across all global exchanges stood a little above USD 5bn, according to Dealogic data. This is well above 2022 but well below the norm, even when compared to the pandemic-ravaged year of 2020.
Market volatility and severe valuation pressure on IPOs has kept several firms on the sidelines, keeping assets for far longer than traditional holding periods, said one banker. But he added that many of these sellers are now eying exit plans.
IPOs are also coming up frequently as a desired solution for sponsor-owned assets, often at the expense of trade sales.
An example is Permira-backed Golden Goose, where the sponsor is adamant that an initial public offering will be the primary exit plan after initially opting for a dual-track route, as reported.
Douglas, the German cosmetics brand retail chain owned by CVC, is also on the IPO track, even though one adviser noted that it could easily attract private interest.
In Spain, investors Cinven, EQT [STO:EQT] and Canadian Pension Plan Investment (CCPI) are lining up potential advisers to handle an IPO of hotel room booking firm Hotelbeds, as reported. According to Mergermarket's Likely to Exit (LTE) predictive algorithm, Hotelbeds has a LTE score of 75 out of 100.
In addition, Travelport, a UK-based travel retail platform owned by Siris Capital Group and Elliott Management, has a LTE score of 58 out of 100.
Sponsor-backed assets often benefit from sophisticated owners that have carried out IPOs on other assets before; this experience makes the process smoother than in situations involving family-owned businesses venturing into the capital markets, a second ECM banker noted.
But this doesn’t automatically guarantee a better outcome, he was quick to add.
A third ECM banker cautioned against generalising issuer behaviour. Some sponsors are not excited by the discount imposed on recent IPOs, as well as the meagre aftermarket of the few sponsor-backed companies that listed this year.
Instead of rushing through dangerous listings, many owners won’t hesitate to hold onto an asset for even longer. EQT’s Swiss skincare company Galderma is an example of a PE owner who has postponed a planned IPO several times because of adverse market conditions. CVC Capital Partners has also been working on a stock market listing of its own business, though it has decided to shift the deal launch in Amsterdam until 2024 due to uncertainty, as reported.
The source added that sponsors also need to be careful trying to list assets that were previously on a dual-track path.
Investors don’t like companies put up for a listing as a last resort after an unsuccessful private sale process.
If there has been little appetite from private buyers, it is far more difficult to present the same equity story in listing-related early looks given IPO buyers lack the same strategic focus as many private bidders.
“People will ask you, if nobody wanted this asset, why should I bet my money on it?,” he said.
*Mergermarket's LTE predictive analytics assign a score to sponsor-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a deSPAC transaction.
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