PE-backed IPOs see record deals sizes in Q1 2011
- 20 PE-backed companies go public to raise US$13.5b
- Overall IPO deal values down 13% from the same period a year ago
- 70% of PE-backed IPOs end quarter above offering price
- Registrations and shadow pipeline could make 2011 most active since 2007
LONDON, 15 APRIL 2011 – Despite a global events-driven slowdown across the broader IPO market, PE-backed companies executed some of the largest sponsored IPOs in history in the first quarter of 2011. In aggregate, PE-backed companies raised US$13.5b in 20 separate transactions in the first three months of this year, compared to US$7.2b in 27 deals in the same period in 2010, according to the latest Private Equity, Public Exits quarterly analysis by Ernst & Young.
Market volatility stemming from unrest in the Middle East and the disaster in Japan took its toll on new issuance momentum in the latter half of the first quarter. Globally, 294 companies (both sponsored and non-sponsored) raised US$46.9b over the last three months, down 13% from the same period in 2010, when companies raised US$54.1b in 300 initial public offerings. In aggregate, eight companies backed by PE firms pulled their IPOs in the first quarter due to market conditions. Four of them directly cited the events in Japan.
Jeffrey Bunder, Global Private Equity Leader at Ernst & Young says: “PE-backed companies are continuing to play a critical role in the still-recovering new equity issuance market, with increasingly large deals, despite the recent uncertainty affecting the public markets. We expect to see continued elevated activity as houses seek to take advantage of receptive equity markets and initiate the process of exiting some of their largest holdings acquired in the 2005-2008 timeframe.”
Record breakers
Despite ongoing uncertainties in the markets, the first months of 2011 saw the record for the largest-ever PE-backed IPO broken twice in rapid succession, starting in early February, by Houston-based pipeline operator Kinder Morgan who completed a US$3.3b IPO on the NYSE. For a short period of only a few weeks, this was the largest PE-backed IPO on record, before, HCA Holdings, the largest hospital operator in the US, priced 145 million shares to raise US$4.4b in proceeds, making it the largest sponsored offering in history, and the largest IPO on a US exchange since General Motors raised US$18.1b in August 2010.
Emerging markets slow as US continues to drive forward with IPOs
Activity in Q1 was concentrated in the Americas, which represented more than 90% of proceeds raised and accounted for 80% of the quarter’s deals.
In the second half of 2010, emerging markets represented more than half of all sponsored companies executing IPOs but have slowed thus far in 2011, raising US$1.4b from five transactions.
“Emerging markets will remain an important venue for PE-backed issuance”, says Bunder. “In Brazil, many companies postponed or withdrew planned IPOs in light of the exceptional US$70b offering last year by Petrobras, Brazil's state-controlled oil producer. With the overhang from Petrobras receding, PE-backed companies in Brazil are once again poised to increase their activity and PE-backed offerings could account for as much as one-third of new issuance.”
High returns continue post-IPO
Through the end of the quarter, 70% of Q1 PE-backed IPOs were trading above their IPO price, with an average increase over issuance price of 14.0%.
Chinese internet company Qihoo 360 Technology, backed by CDH China Holdings, was the best-performing IPO of the quarter. The company, which operates in the mobile and internet security space, opened up 86% in its NYSE debut, and closed out March up 104%, making it the highest-performing US IPO of the quarter. The quarter’s large IPOs did well also – Nielsen Holdings, in particular. The shares gained 18.7% over the company’s IPO price.
Bunder continues, “This year could be the biggest on record for PE-backed IPOs, given increasing demand for new issuances and ample supply. PE-backed IPOs have performed well as a group with investors seeing good returns on deals – both recently and over the last year – setting a solid foundation for 2011.”
Future outlook
There are currently 56 PE-backed companies in registration to go public, which could raise an aggregate US$14.7b across global exchanges.
In addition to companies that have formally filed, the sometimes volatile nature of the 2009-2010 market has also led to a sizeable shadow pipeline of PE-backed companies that either have yet to make an initial filing, or previously withdrew an IPO due to negative market conditions. Many of these companies are likely to pursue an IPO during 2011.
Bunder concludes: “As PE firms seek to exit some of the largest businesses acquired between 2005 and 2008, this year could eclipse the 2007 PE-backed IPO peak, when US$58b was raised from IPOs. Investor appetite for such deals has been tested and reinforced over the last several quarters – benefiting from continued momentum in the global equities markets. In the absence of additional economic shocks, the conditions appear to be ripe for one of the most active years on record.”
About the report
Private Equity, Public Exits is published quarterly by Ernst & Young to provide insight and analysis on capital markets trends as they apply to the private equity-backed IPO market. Original data is sourced from Dealogic.
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