CNBC Comment: Volatile markets threaten the IPO revival
THE SELL-DOWN in emerging market assets has seen investors withdraw money at speed. And it may not be over yet. As Nomura analysts have pointed out, just because the selling has been vicious, it doesn’t mean it’s a crowded trade.
But stepping away from the herd is private equity. Last year, these cash-hoarders scoured the globe for worthy assets, but were dismayed at lofty valuations that showed no sign of abating. But with major stock markets down, the opportunity is ripe for the industry to wade back in.
Despite 2013 being a buyer’s market in terms of debt availability, global private equity buyouts were broadly flat, up just 0.4 per cent on the previous year according to MergerMarket. Asia Pacific had the highest buyout activity in the final quarter. This year will be another buyer’s market with plenty of cash and debt to tap. But emerging market woes and Fed tapering concerns could tilt the deck nicely in private equity’s favour.
Industry insiders believe the emerging market ructions and Fed talk are not dominating private equity discussions like elsewhere. Meanwhile, money managers are again grimacing as earnings season exposes the pain on quarterly accounts from falling emerging market currencies. But for private equity, these devaluations are not impacting deal multiples because, even though the ticket price may be cheaper, profits are also lower. Increasingly bearish sentiment also lessens competition from public companies, as shareholders demand dividends instead of risky acquisitions.
European private equity houses were already scaling up outbound transactions in the last quarter of 2013. According to MergerMarket, deal value in the final three months of 2013 leapt 75.2 per cent from the previous year.
The stunning stockmarket rally in 2013 also had private equity managers neatly packaging up assets for exit, in a year that saw many old names lighting up the big boards again as IPOs staged a comeback. Data by MergerMarket indicates the fourth quarter saw 458 private equity exits, worth 18 per cent more than the previous quarter.
But the mode of exit could change. Less certain times for stocks after a bad start in January could pave the way for more private sales and take the shine off IPOs. Advisers working on parallel sales could ultimately decide on a quick, clean exit through a secondary buyout, instead of the heartache of an IPO, if the stock market doesn’t promise outsized returns like those of 2013. An IPO typically means more regulatory hurdles to cross and private equity remains cuffed to the sale for a couple of years. Volatile markets threaten to pour cold water over an IPO revival whose longevity many were already questioning.
Karen Tso is an anchor for Squawk Box Europe on CNBC. @cnbckaren