For the last four years, private-equity firms have taken few of their Australian companies public. The main culprit: a lackluster initial public offering by the country’s largest department-store chain that soured investors.
Now there are signs the freeze is over. In October, OzForex Group Ltd. (OFX), an online currency broker whose owners include U.S. buyout firms Carlyle Group LP (CG:US) and Accel Partners, jumped 28 percent on its debut. It was the biggest first-day gain for any Australian IPO of at least $100 million in more than six years, data compiled by Bloomberg show.
And in the next six months, IPOs of buyout-backed companies may raise as much as A$2.5 billion ($2.4 billion), more than the total amount of first-time sales in Australia over the past two years. The deals are part of a worldwide revival in initial offerings, more than five years after the peak of a buyout boom that ended with the financial crisis. The trend reflects stock-market gains and the need for firms to return money to partners.
“Investors are now chasing performance again and they are much more open to IPOs,” said Roger Feletto, co-chief executive officer of advisory firm Greenhill & Co.’s Australian unit in Sydney. “This includes assets owned by financial sponsors, which is a contrast” to previous years.
The biggest test will come next month, when Oaktree Capital Management LP and Apollo Global Management LLC (APO:US) seek to complete Australia’s largest IPO in almost three years, a A$697.3 million offering by broadcaster Nine Entertainment Co. By year-end, KKR & Co. (KKR:US) plans to take mining logistics company BIS Industries Ltd. public in an offering that may raise as much as A$500 million, people with knowledge of the matter said.
The Australian drought started after the November 2009 share sale of retailer Myer Holdings Ltd. (MYR) by private-equity firms TPG Capital and Blum Capital. While the investment in the chain generated a $1.3 billion profit for Fort Worth, Texas-based TPG, according to a person with knowledge of the matter, IPO buyers were less fortunate: Myer’s stock has never traded above its A$4.10 offer price.
In 2010, there was only one Australian share sale by a buyout firm -- mining services firm Mastermyne Group Ltd. (MYE), part-owned by Champ Private Equity, which raised A$40 million, data compiled by Bloomberg show. Two companies backed by private-equity firms went public in the following two years, according to data from the Australian Private Equity and Venture Capital Association.
One of them was Collins Foods Ltd. (CKF), which went public in August 2011 as Pacific Equity Partners sold its entire stake in a A$202 million IPO. Three months after that share sale, the company cut its profit forecast by a fifth. The stock is down 35 percent from its IPO price.
Still, the skeptical sentiment is changing as Australia’s benchmark stock index nears a five-year high.
Private-equity firms are also under pressure to return money to their investors. They’ve been holding assets for almost six years on average, up from four years prior to the 2008 financial crash, London-based research firm Preqin Ltd. estimates.
“There is a banked-up reservoir of private-equity exits that ideally should have happened before now, but until now the markets haven’t been conducive,” said John O’Sullivan, vice chairman of investment banking at Credit Suisse Group AG in Sydney.
Sales by private-equity firms account for 40 percent of the $1.8 billion raised in Australian IPOs this year, according to data compiled by Bloomberg.
In the U.S., the number of IPOs through Oct. 31 has increased to 170, raising $44 billion, compared with 118 and $38 billion from the same period in 2012, the data show. Hilton Worldwide Holdings Inc., the hotels operator owned by Blackstone Group LP, filed in September to raise $1.25 billion in an IPO.
In the U.K., where offering proceeds have almost tripled this year, Terra Firma Capital Partners Ltd. and Permira Advisers LLP are seeking to exit investments through first-time sales.
Some skittishness remains about buyout-firm IPOs, so in certain offerings owners are keeping shares in companies to reassure investors, said Simon Cox, head of equity capital markets for Australia at UBS AG.
Apollo and Oaktree will keep stakes in Nine Entertainment after it goes public, according to a share-sale prospectus. Pacific Equity Partners plans to keep all its shares in Veda Group, a provider of consumer and corporate credit data, after a sale of about A$340 million scheduled for this year, people familiar with the offering said. KKR will retain a stake in BIS Industries, people familiar with the matter said Nov. 4.
“Among some investors, there’s a degree of nervousness about buying companies out of private-equity ownership, sometimes due to the history of earnings or putting too much leverage into the businesses,” Cox said.
Even so, IPOs by OzForex and Virtus Health Ltd. (VRT), an operator of fertility clinics, drew enough demand to allow owners Carlyle, Accel Partners and Quadrant Private Equity Pty to exit their investments completely, said people with knowledge of the matter. The OzForex offering was seven times oversubscribed, according to a person with knowledge of the matter. The stock remains 28 percent above its offering price.
Virtus sold shares at the top end of a marketed range as doctors who run the business kept a large stake. The stock is up 52 percent since its June IPO.
“People do remember the cases like Myer, but the best thing that can happen is having more successful sponsor-backed IPOs come to market,” said Shannon Finch, a partner specializing in equity capital markets at King & Wood Mallesons in Sydney, whose firm worked on the Virtus IPO.
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