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Private equity groups are overhauling their exit strategies after accepting that a years-long downturn in initial public offerings is unlikely to end soon.
Buyout executives at the industry’s annual European conference this week said they were prioritising other options for exiting their investments, including breaking up businesses to sell them off in smaller parts or selling companies to themselves via “continuation funds”.
“I can’t remember in my 20 years of growth equity investing, not having an IPO window open for this kind of long period of time,” said General Atlantic co-president Gabriel Caillaux at the Berlin SuperReturn event. “That is obviously calling us to rethink not strategy, but some tactical aspects.”
Buyout firms have a record backlog of ageing and unsold assets, as higher interest rates and market turmoil have made it harder to float companies or sell at acceptable prices, putting pressure on them to find other ways to return cash to their investors.
The volume of private equity-backed IPOs has slumped since the frenzy of 2021, with only nine across Europe and the US this year compared with 116 in the same period in 2021, according to Dealogic.
The head of private equity at a large international firm said IPOs now ranked behind break-ups and minority stake sales as an exit option.
“The IPO is number three on the list these days,” they said.
Permira in January sold a minority stake in its €2.2bn luxury sneaker company Golden Goose after abandoning an IPO. EQT, which was last year reported to be considering a listing for its schools business Nord Anglia, eventually cashed out its older fund by selling to a consortium that included one of its newer funds.
Sellers were increasingly securing sales by offering buyers greater protection against risks, including through earnouts — where part of the price is linked to future performance, the private equity executive said. “The toolbox is really being opened now,” they added.
Executives had hoped the election of US President Donald Trump would lead to a revival in IPOs, but instead his policy volatility has closed the capital markets to most potential issuers.
In March, Permira and Hellman & Friedman postponed a planned IPO of US software group Genesys, while Bain Capital and Cinven did the same with their listing of German pharmaceuticals company Stada.
The head of private equity at a large global asset manager said that in the wake of Trump’s April 2 tariff announcements, listings were “gone”.
A top dealmaker at another of the world’s largest private capital firms said “the only thing that’s worse” than the current IPO market was “the perception of how strong it was supposed to be compared to how it’s turned out”.
Structural changes in the markets were also making it harder to list businesses, they added, including the rise of passive exchange traded funds that do not typically buy IPOs.
Daniel Lopez-Cruz, head of private equity at Investcorp, said the IPO market “for all intents and purposes is closed for private equity companies”.
The secondary market — where buyout firms sell assets to themselves with so-called continuation funds, or investors in private equity funds sell on their stakes in those funds — had become “a great help”, he said.
Continuation vehicles have soared in popularity in recent years as a means to return cash to fund investors. Private capital firms sold $75bn of assets on the secondary market last year, up 44 per cent from the previous year, according to Jefferies. The vast majority of that went into continuation funds.
Some executives remained positive about the possibility of IPOs making a comeback, however.
“Things can change very, very fast,” said the head of a major European buyout firm. “We have businesses in our pipeline that we’re considering IPOs for in nine or 12 months. It’s about being well prepared and going for it when you can.”