After an unprecedented buying binge from 2005 to 2007, private equity firms are looking for public market exits. But while the pace of new filings and offerings is gaining speed, private equity-backed IPOs have actually underperformed in pricing and first-day performance, according to a new report from Renaissance Capital.
Currently, the IPO pipeline stands at 161 companies seeking to raise more than $56 billion in total proceeds. Private equity firms control about a quarter of those companies. Collectively, they’re seeking to raise more than $16 billion, with offerings from several recognized brand names, including HCA, Nielsen, Toys “R” Us, AMC Entertainment and Booz Allen Hamilton.
But public market investors have a pattern of price sensitivity when it comes to PE-backed deals. Last year, half of the PE-backed IPOs priced below the range, compared to only 15% for non-PE-sponsored IPOs—it’s a pricing pressure Renaissance says may be attributable to more highly leveraged balance sheets. The 8% average first-day pop for PE-backed IPOs is also well below the 12% average of its non-PE peers.
That track record of underperformance, however, has done little to restrain a flood of new offerings. Year-to-date, 21 IPOs of the 87 that have been completed were PE-backed, which is slightly lower than the 2003-2009 average. In terms of proceeds, however, PE-backed IPOs account for $5.6 billion of the $13 billion raised year-to-date.
At 43%, Renaissance says, this is the highest level of PE activity in the IPO market in at least seven years.