Better year expected for private equity IPOs

About $18bn of initial public offerings of private equity-owned companies are expected this year in what is hoped to be a stronger year than 2010.

According to Ernst & Young, there are 50 private equity-backed companies that have registered their intention to go public, which could raise an aggregate $17.9bn across global exchanges.

“There is huge pent-up demand from companies for IPOs, which accounted for only 20 per cent of equity capital markets’ issuance last year, in Europe, Middle East and Africa,” said Michael Findlay, managing director at investment bank Moelis. “I expect that will be more like 25 to 30 per cent this year. [Private equity funds] will be a high proportion of the activity. They have a lot of assets they have restructured and that they want to bring to market.”

While IPOs made a comeback in 2010 after the crisis, recent market volatility meant many financial sponsors were forced to put plans on hold. There is a hope among some bankers that 2011 will be a more positive year for flotations.

The month of January is already the biggest on record for IPOs since 2000, according to Dealogic, the data provider.

The value of planned IPOs from private equity sponsors indicates volumes this year will surpass those that went public during the entire year in both 2008 and 2009, but this year’s planned $17.9bn of IPOs is still less than the $35bn that was set to be raised by 155 companies at the start of 2010, according to Ernst & Young.

The estimated number for 2011, however, excludes a sizeable “shadow pipeline” of private equity-backed companies that either have yet to make an initial filing, or withdrew an IPO based on negative market conditions yet remain interested in coming to market.

E&Y analysts expect many of these companies to have another run at going public this year.

“Volumes will depend on whether the economic recovery takes hold and investors remain confident the eurozone imbalances can be managed,” said Craig Coben of Bank of America Merrill Lynch.

“Investors have done well out of IPOs and I think they’ll be receptive to new issues, but not indiscriminately so.”

Analysts at Société Générale forecast €80bn in IPOs in Europe, Middle East and Africa this year.

This is up from 2010, but still below the market peak in 2007 of €87bn.

The companies expected to list this year include hospital operator HCA Holdings, which at $4.6bn, is poised to be the largest PE-backed deal in history, Toys R Us and energy company Kinder Morgan.

One challenge to this is a recovery in the financing markets, which gives private equity funds some alternatives to IPOs, such as sales to trade buyers or to other funds.