Private equity-backed IPOs leave buyers with worst 2010 returns
Thursday, 20 May 2010
NEW YORK, May 19 (Bloomberg): Initial public offerings from US companies backed by private-equity firms are losing money for investors for the first time in at least a decade, making them the worst performers in 2010's initial public offering (IPO) market.
The 13 offerings by private-equity funds have fallen 2 per cent in the first month of trading after averaging gains every year since at least 2001, according to data.
The IPOs have also lagged behind the Standard & Poor's 500 Index, while companies without support from buyout firms have beaten the benchmark gauge for US stocks by 5.8 percentage points after their initial sales.
The disparity indicates that investors are becoming less willing to purchase what private-equity firms are selling, even after funds from Blackstone Group LP to Apollo Global Management LLC offered the biggest IPO price cuts this year.
The failure of buyers to profit from the share sales may hamper the funds as they try to offload some of the $2 trillion in leveraged buyouts made during the credit-market bubble, according to Rochdale Investment Management LLC and 1st Source Investment Advisers.
"Private-equity firms are trying to unload these deals to help pay down some of the excessive debt they took on to buy those businesses," said David Abella, a manager at New York-based Rochdale, which oversees $2.9 billion.
"These deals have not proved very attractive for fund managers, so they would probably be more likely to avoid them going forward."
The largest rebound in the S&P 500 since the Great Depression had spurred private-equity owners to turn to IPOs after returning less money to clients last year than at any time since at least 2000.
Money raised by LBO firms fell 78 per cent to $35 billion in the fourth quarter of 2009, according to Preqin Ltd of London, after the collapse of New York-based Lehman Brothers Holdings Inc a year earlier stymied deals and froze credit markets.
Investors are now demanding bigger IPO discounts from private-equity firms after concern that Greece's debt crisis is spreading helped spur the biggest weekly surge in stock-market volatility in two decades.
At least 17 initial sales have been postponed or withdrawn worldwide this month, while US companies that completed deals have been forced to cut their size by as much as 70 per cent, data show.
"There's a window when people can do IPOs," said Jonathan Vyorst, who helps oversee $1.7 billion at New York-based Paradigm Capital Management Inc. "When the window opens, a lot of people rush to get deals done. That window may be closing."
The 13 offerings by private-equity funds have fallen 2 per cent in the first month of trading after averaging gains every year since at least 2001, according to data.
The IPOs have also lagged behind the Standard & Poor's 500 Index, while companies without support from buyout firms have beaten the benchmark gauge for US stocks by 5.8 percentage points after their initial sales.
The disparity indicates that investors are becoming less willing to purchase what private-equity firms are selling, even after funds from Blackstone Group LP to Apollo Global Management LLC offered the biggest IPO price cuts this year.
The failure of buyers to profit from the share sales may hamper the funds as they try to offload some of the $2 trillion in leveraged buyouts made during the credit-market bubble, according to Rochdale Investment Management LLC and 1st Source Investment Advisers.
"Private-equity firms are trying to unload these deals to help pay down some of the excessive debt they took on to buy those businesses," said David Abella, a manager at New York-based Rochdale, which oversees $2.9 billion.
"These deals have not proved very attractive for fund managers, so they would probably be more likely to avoid them going forward."
The largest rebound in the S&P 500 since the Great Depression had spurred private-equity owners to turn to IPOs after returning less money to clients last year than at any time since at least 2000.
Money raised by LBO firms fell 78 per cent to $35 billion in the fourth quarter of 2009, according to Preqin Ltd of London, after the collapse of New York-based Lehman Brothers Holdings Inc a year earlier stymied deals and froze credit markets.
Investors are now demanding bigger IPO discounts from private-equity firms after concern that Greece's debt crisis is spreading helped spur the biggest weekly surge in stock-market volatility in two decades.
At least 17 initial sales have been postponed or withdrawn worldwide this month, while US companies that completed deals have been forced to cut their size by as much as 70 per cent, data show.
"There's a window when people can do IPOs," said Jonathan Vyorst, who helps oversee $1.7 billion at New York-based Paradigm Capital Management Inc. "When the window opens, a lot of people rush to get deals done. That window may be closing."