PE-backed IPOs push private companies into the public domain

23 February

PE-backed IPOs push private companies into the public domain

After a dip early in the year, 2020 marked a resurgence in the number of private equity (PE)-backed initial public offerings (IPOs) amid a tidal wave of deal activity in the second half of the year. PE firms are now increasingly turning to the public market to exit their portfolio companies.

There were 59 sponsor-backed IPOs in 2020, raising US$44.37 billion—the most raised in one year since 2010—compared to just 31 deals that raised a combined US$16.9 billion in 2019.

The momentum has carried into 2021, with financial sponsors raising US$14.1 billion in 16 offerings so far in 2021. If sponsor-driven activity continues at this pace, 2021 could eclipse the record set in 2020.

The perfect match

What’s driving this rush to the public market? Sponsors are capitalizing on feverish investor demand and robust valuations that are fueling activity in the wider equity capital markets. In the year’s biggest sponsor-driven deal to date, Bumble—a dating app backed by Blackstone—raised US$2.472 billion in its Nasdaq IPO earlier this month. The IPO was priced at US$43 per share, comfortably above the US$37-39 price range, which had already been revised upward. Shares of Bumble soared over 60% during its first day of trading.

Three Blackstone portfolio companies have listed so far this year, including Bumble. Other sponsors that have turned to the public market include Carlyle, with two listings, as well as General Atlantic, Oaktree Capital and Roark Capital.

The rise of special purpose acquisition companies (SPACs) gives PE sellers more options to exit publicly. Some companies are pursuing dual track processes to weigh the alternative exit routes.

One notable expected deal is Informatica, a software company offering data management products backed by Permira Funds and the Canada Pension Plan Investment Board since it was taken private in a US$5.3 billion buyout. According to a Mergermarket story, Informatica is expected to pursue a near-term listing, with an IPO or a potential SPAC merger among its options.

With no sign of activity abating anytime soon, a future as a public company beckons for many companies in the later stages of PE ownership.

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