May 17, 2013
Interviewed by: David Snow
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Private Equity IPO Exits, Q1 2013

Download EY’s Q1 2013 report on sponsor-backed IPOs here. PE-backed IPOs kicked off 2013 with great momentum compared to prior years. Michael Rogers, Global Deputy Sector Leader at EY, outlines the principal drivers behind private equity IPO exits in the U.S., and also comments on record follow-on offerings and the mixed picture in Europe.

 

Download EY’s Q1 2013 report on sponsor-backed IPOs here. PE-backed IPOs kicked off 2013 with great momentum compared to prior years. Michael Rogers, Global Deputy Sector Leader at EY, outlines the principal drivers behind private equity IPO exits in the U.S., and also comments on record follow-on offerings and the mixed picture in Europe.

 

Private Equity, Public Exits Q1 2013
Interview With Michael Rogers of Ernst & Young

There was a strong increase in PE-backed IPOs in the first quarter of 2013. Can you talk about the trends behind that momentum?

Rogers: An increase in activity has been very significant in the first quarter of this year. And I’d say principally it has to do with the increase in the markets in general, that’s a big driver of this. Because if you think about it the Dow Jones has hit a 6-year high, the VIX index, the index that supports volatility in the market place is at a 6 year low. So that opened the window for a lot of IPO activity. And as you might imagine there’s a number of IPO-related PE IPOs that were in the queue ready to go out and when this window popped open a lot of people rushed through it. I think that’s the principle driver of that.

The first quarter also saw a record in PE-backed follow-on issuances. Why is that worth paying attention to?

Rogers: We think it’s very important for a couple of reasons. We talked about earlier the fact that maybe there had been some pent up demand in IPOs or the opportunities to get some deals launched, and a lot of them went out in the first quarter. But in the last two to three years a lot of funds took their companies public but maybe didn’t issue the full amount that they really were targeting. In fact what they probably did was get an initial stake on the table hoping to do some follow ons down the road. And so what we saw in the first quarter was likewise the market was very attractive, some of these companies have performed pretty well and so the market was very receptive to secondaries and follow on transactions, and they actually went very well.

But I think the other thing to add to this is that not just the equity markets have improved but the debt markets have improved as well. So a part of the study really discussed the fact that a lot of folks doing dividend driven debt offerings, in fact in fourth quarter of last year there were over 50 dividends driven debt offerings to support IPOs and to support recently listed companies. And that’s significant from the stand point that it now shows that there is not only equity capital market support, but debt capital market support out there. And I think that’s a good sign for liquidity in the market place as well.

What does the market for PE-backed IPOs look like across Europe?

Rogers: I’ve spent the last three years on assignment in London so I watched this market very, very closely. And I think that the big issue there is just underlying confidence in the market place. And I think the world markets, most indices are up 20% on a global basis so that helps support some of the offerings in Europe and in EMEA. And I think that what really has happened is there is a base line confidence level that’s returning.

I think Europe will continue to have little bumps in the road along the way, I don’t think it will be a smooth recovery. The most recent situation is the situation in Cypress of course. And I think there will be more issues like that down the road I don’t think that this will be a straight line upward, but while I was in that role, and I saw for the last couple of years, a stabilization of somewhat. There was the crises were coming fewer and farther in between and the opportunity in the market to get its feet under itself and stabilize was there. Then as the equity market started to improve we saw Europe tag along to that and get some issuance off as well.

The number of issuances that were done in the first quarter of 13 almost doubled what was done in all of 2012. So very strong robust recovery, all be it from a small base, because the market had really almost shut down there a few years ago.

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