Private equity firms once had a script, of sorts. Buy an asset, load it up with debt, fix it and then flip it. But in recent years, weak M&A markets and soldered IPO windows have plugged the exit — leaving trillions of unsold assets weighing down private equity portfolios.
Sponsors hope that improving market conditions will unblock the pipes. In Europe a number of companies are considering listing this year, including Germany’s Stada, Asker Healthcare and Dutch telecoms group Odido Holding, according to a Bloomberg report.
But markets are only half the story. Europe’s Stoxx index is up 12 per cent over the past 12 months. It now trades at 15.5 times forward earnings, above its 10-year average. Yet throughout 2024, the number of companies that braved the stock exchange was tiny. Only €64bn was raised — exactly half the average annual amount over the previous decade.
That divergence highlights the fact that the buyers of listed stocks and the buyers of listing stocks are not one and the same. For an IPO to get the green light, bankers want to see orders from active fund managers. These have steadily been losing share over the past decade, and in 2024 suffered €60bn of outflows in Europe.
In their diminished circumstances, funds are reluctant to bet on anything other than a sure thing. Last year, a middle-of-the-range company would have been best advised to wait, while those in ropier circumstances had no choice.
So what might the new IPO playbook look like? A look at the handful of successful listings in recent times provides a few clues.
For one thing, they were gold-plated businesses. And for another, they were sold on the cheap. PE firm CVC — which priced at a discount of over a quarter compared with peer EQT — is up 38 per cent. Galderma, Swiss maker of “aesthetic injectables”, has doubled in market value since its year-ago listing.
They were sized to go, too, with smallish initial free floats. The upside is that, if the listing is successful, this clears the way for owners to conduct follow-on sales at higher prices, as Galderma backers EQT and Abu Dhabi’s Adia did in September and November last year.
The decline of active funds is not just a European phenomenon, of course. But US markets attract some of the glitzier candidates. And higher valuations make it less painful for sellers to offer IPO discounts. US listings that don’t adapt to the new circumstances, however, also get clobbered — as Venture LNG’s debacle shows.
Private equity and venture capital investors have good reason to eye the markets this year. But they will now know that the days of flogging any old horse are gone for good.
camilla.palladino@ft.com