M&A

19 November, 2009

Buyout investors ready for less profit in IPO rush

* Ready to swap some upside for cash when firms floated

* Don't see IPOs as clean exit

* Expect firms to hold more public stock in future

* See 2010 as benign environment for exits

By Simon Meads

PARIS, Nov 19 (Reuters) - Private equity investors are ready to accept lower returns in exchange for getting some cash back when buyout firms float some of their biggest companies in what could be a crowded market for new issues next year.

As stock markets across Europe have stabilised, large buyout houses have been preparing their best performing portfolio companies for flotation, as other exit routes have been closed.

Companies being lined up for flotation next year include Permira [PERM.UL] and Apax Partners' budget fashion chain New Look and BC Partners' [BCPRT.UL] chemicals distribution business Brenntag [BREHO.UL].

Initial public offerings (IPO) in Europe are expected to pick up in 2010 after a very slow 2009, but some investors attending the SuperInvestor private equity conference in Paris were wary about how much cash they will receive.

"Every investor wants to see some signs of liquidity. Would they trade a little bit of upside to get liquidity back? I think the answer is probably yes," said Tim Jones, partner at Coller Capital, the world's largest buyer of private equity fund participations on the secondary market.

Buyout firms and their investors said next year could provide a good chance to float companies, after investors have been force-fed a raft of deeply discounted rights issues.

"Our sense is institutional investors do have money to invest, are keen to look at new companies but are going to be very discerning in deciding which companies they are going to invest in and I'm sure they will be very demanding on value," said Andrew Newington, managing partner for BC Partners.

In addition to Brenntag, BC Partners has travel industry technology provider Amadeus and French care homes operator Medica slated for a listing next year, he said.

Permira is considering a share sale of part of its $7.4 billion holding at Danish telecoms giant TDC, which it co-owns with Blackstone (BX.N), KKR [KKR.UL], Apax and Providence Equity Partners.

But some believe the exit window could be short as concerns around the performance of the real economy persist. Listings may not offer a clean and definitive exit, either, as private equity firms could have to retain more stock in floated firms than in previous cycles, investors said.

LIMITED EXPECTATIONS

Investors expect to get little money back from IPOs, but it could leave the buyout houses with a more liquid holding in a company.

Flotations make companies more visible, their performances easier to assess, and could attract strategic buyers further down the track.

The start of an IPO process could also flush out interest from buyers, as occurred with Liberty Global's (LBTYA.O) $5.2 billion deal for German cable company Unitymedia [UNTMDA.UL], agreed on the day it was due to launch its IPO. [ID:nBNG19819]

That sale benefited majority owners BC Partners and Apollo Management [APOLO.UL] and their investors, but it deprived Europe's private equity firms a litmus test for investor appetite.

(editing by John Stonestreet)

Source: http://www.reuters.com