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Private equity funds sitting on record cash pile
Across Europe, companies hoping to list are having their plans dashed by plunging equity prices. But what's bad for public stock markets may be good for private equity firms.
Having started the year with a record US$1 trillion cash pile, private equity funds have found few chances to spend it, despite pressure from investors wanting them to put the money to work.
Strong demand for initial public offerings (IPO) and cash-rich companies muscled them out of deals.
But that may be starting to change, as a slide in equity markets has put off IPO investors, and slowing global growth has injected a new caution into corporates. "Everyone in the private equity community is looking at what IPOs haven't gone ahead and whether they can get in on them," a private equity source told Reuters, declining to be named because of the sensitivity of the issue. "I'm not sure anyone would come today to these kinds of markets, because investors will smell blood," he added, referring to the low price investors would demand in an IPO.
Shares in luxury shoemaker Jimmy Choo nudged higher after they listed on Friday. But the announcement the same day by British lender Virgin Money that it was postponing its flotation, worth up to US$3.2 billion, has dampened hopes that IPO markets might stage a quick recovery.
Europe's blue-chip stock index FTSEuroFirst 300 has dropped over 10 per cent since its Sept 19 high. And after a record first half of the year for equity capital markets, which saw companies around the world raise almost half a trillion dollars in the biggest share sale bonanza since 2007, the balance has shifted.
Jimmy Choo had to sell shares at the bottom of its expected price range, a sign that public investors are driving an increasingly hard bargain, while companies from Italian cosmetics firm Intercos to UK lender Aldermore have had to scrap listings after failing to get enough demand.
Failed IPOs are not always good news for private equity firms, particularly if they are the owners looking to sell in a listing. And they still face competition for deals with trade buyers and other investors, such as sovereign wealth funds.
Financial services group Old Mutual's wealth arm snapped up money manager and former IPO candidate Quilter Cheviot for £585 million (S$1.2 billion) on Friday, less than the price it reportedly offered earlier in September when equity capital markets were in better shape.
That followed Singaporean sovereign wealth fund GIC taking a stake in Carlyle's UK roadside recovery group RAC in September, and the US$2.2 billion acquisition of Norwegian cable operator Get AS by Danish telecoms group TDC.
But private equity firms are hoping their time is coming.
French energy services firm Spie withdrew its flotation last week, which would have been the largest French listing since before the financial crisis, and is already being eyed by private equity firms, according to two sources familiar with the matter.
Industry sources said it was unlikely the company would want to sell to a buyout firm because of the management team led by Gauthier Louette is looking for long-term investors.
The most likely scenario would be for sovereign wealth funds such as the Abu Dhabi Investment Authority (ADIA) and Singapore's GIC to become so-called cornerstone investors by buying a sizeable stake in Spie at a pre-agreed price to underpin a fresh attempt at an IPO.
But any new attempt to list would not be until at least next year, and prospects are dim for other IPO candidates, meaning private equity funds remain hopeful of opportunities to come.
These could include French linen firm Elis and German classified ads group Scout24, which have also put back planned listings. "All the banks are saying the IPO market is dead," the private equity source said. "I think Jimmy Choo will be the last one."