Q2 2011 sees highest PE-backed IPO proceeds since 2007

• 45 PE-backed companies raised US$17.2b in proceeds

• Twice as many listings compared to previous quarter, values up 24%

• Active pipeline as 84 sponsored companies filed for IPOs in the last three months

• Eight percent average quarter-end price increase since listing

PE-backed IPO activity in Q2 continued its upward trend as proceeds reached their highest quarterly total since the second quarter of 2007. In aggregate, 45 PE-backed companies raised US$17.2b in proceeds, nearly twice the volume of Q1 and up 24% on a value basis, according to the latest Private Equity, Public Exits quarterly analysis by Ernst & Young.

In addition to IPOs that priced, the second quarter was extremely active for new filings - 84 sponsored companies filed to go public over the last three months and as of 30 June there were 88 PE-backed companies registered to go public, which could raise more than US$20b across global exchanges. This includes one of the most anticipated deals of the year - Chicago-based Groupon, which filed to raise up to US$750m.

In 2011 to date, PE-backed companies have raised US$31.1b in 68 separate IPOs, which is on track to exceed the US$58.3b raised at the 2007 market peak.

Jeffrey Bunder, Global Private Equity Leader at Ernst & Young says:

“Despite ongoing uncertainties in the markets, momentum is clearly continuing to build across the IPO markets, giving PE sponsors an ever-widening window to exit holdings as investors move further out the risk spectrum in search of companies with strong growth stories.”

Emerging markets see a jump in activity

Companies based in the emerging markets continue to see elevated activity. In Q2, they raised US$7.7b across 17 separate deals, the most since the fourth quarter of 2007. Latin America executed four significant IPOs during the quarter, raising US$3.7b in aggregate. Included was a US$566m offering from Brazilian appliance retailer Magazine Luiza, a US1.4b offering from Argentinean restaurant operator Arcos Dorados and the US$888m offering of health insurer Qualicorp. The company was acquired by The Carlyle Group in a secondary transaction from General Atlantic Partners in July 2010 for US$1.2b in the Brazil’s largest PE transaction of last year.

Two companies based in Russia raised an aggregate US$2b in proceeds. St. Petersburg-based Etalon Group raised US$575m issuing shares on the London Stock Exchange. Additionally, internet company Yandex raised US$1.4b in a listing on the Nasdaq.

Companies based in China and India raised US$2.7b across nine deals in the second quarter, a 50% increase in volume and an 80% increase in value over the US$1.5b raised in six deals in Q1.

Bunder says, “Emerging markets exchanges are becoming increasingly amenable to sponsored IPOs as investors become more comfortable with the PE model. Additionally, the growing availability of cross-border listings is providing emerging markets -based companies with a wider range of opportunities than in past cycles.”

Europe rebounds in Q2 after a weak Q1, but market remains choppy

Activity in Europe rebounded in the second quarter increasing to eight PE-backed offerings from just one in Q1, marking the most number of PE-backed IPOs in a quarter since the recession began. Proceeds jumped from US$104.7m in Q1 to nearly US$2.6b in Q2, but were down 34% from the US$3.9b raised during the same period a year ago. All deals but one were priced within their expected ranges.

Asia-Pacific deals impacted by selloff in broader market

Activity on Asia’s exchanges grew from six deals valued at US$1.3b in Q1 to 12 deals valued at US$3.2b in the second quarter. Despite the increase however, issuance came under pressure midway through the quarter as investors dealt with growing concerns about the effects of looming inflationary pressures on the region’s economy, leading many companies in Asia-Pacific to postpone or cancel their offerings. China in particular saw 28 deals postponed or withdrawn in Q2.

Bunder continues: “While market sentiment could slow the pace of new issuance out of China, the overall pipeline remains healthy.”

Strong post-IPO performance

Sponsored companies that went public in 2011 saw an average first day increase of 10.0% and closed out Q2 up an average of 8.0% from their offer price. Performance was stronger in the Americas, where the average sponsored deal increased 13.9%. EMEA deals increased 3.5%, and sponsored IPOs on Asia-Pacific exchanges lost an average of 2.9% through the end of the quarter. Through the end of the second quarter, PE-sponsored deals from 2009 and 2010 remained well in the black — the average IPO from 2009 closed up 17.7% from offer price, and the average 2010 deal closed up 26.9% from its IPO price.

Future outlook

Bunder concludes: “Investor worries about the renewed debt crisis in Greece and widespread concerns about the pace of the global economic recovery sent global equities indices lower and challenged post-IPO performance in the second half of the quarter.

“However, PE-backed IPOs have performed well as a group with investors seeing good returns on deals — both recently and over the last year. In 2011 to date, PE-backed companies have raised US$31.1b in 68 separate IPOs, which is on track to exceed the US$58.3b raised at the 2007 market peak.”