(Bloomberg) -- Private equity firms should compromise on valuation and leave money on the table for new listings to succeed in what is currently a “buyer’s market,” according to asset manager BC Partners.
“As private equity owners, we need to make sure that we leave some runway and we don’t try and squeeze every last dollar at IPO,” said Nikos Stathopoulos, Europe chairman, in an interview.
His comments come after BC Partners-backed Springer Nature AG & Co KGaA debuted on the Frankfurt Stock Exchange earlier this month, in Europe’s first sizable initial public offering of the autumn season.
Supported by the price, the transaction drew demand for more than six times the stock on offer, Stathopoulos said.
“Part of the reason why the Springer Nature IPO was successful is that we were not greedy,” said Stathopoulos. “This is important for private equity-backed IPOs because sometimes they get a mixed reception.”
The deal was priced just above the midpoint of its marketed range, raising €522 million for Springer Nature and its private equity backer at a valuation of €4.5 billion — far from the €7 billion market cap mooted before summer.
Shares in the publisher of science journal Nature jumped on their first day of trading and were changing hands at around €23.83 at 1:46 p.m. local time Monday, about 6% above the price of the IPO.
Stathopoulos voiced confidence that Springer Nature’s valuation discount to peers including Relx Plc would narrow over time as the company grows.
“If the share price follows, we can do block trades and increase liquidity,” he said.
Other buyout groups that have priced IPOs conservatively in the past couple of years such as Ardian SAS and Warburg Pincus LLC have seen their investments appreciate on the stock market, allowing them to offload further shares through overnight placings.
IPO pipeline
European IPOs have seen signs of revival this year aided by declining interest rates and higher stock prices. Bourses in the region have seen almost $19 billion raised through first-time share sales so far this year, an increase of around 50% from a year ago, according to data compiled by Bloomberg, with a few candidates still trying to go public ahead of the US presidential election next month.
IPOs are likely to become a more common exit route for buyout funds, especially from 2025, Stathopoulos said. For very large investments, private equity firms might be left with a choice between taking them public or deferring an exit by moving them to a continuation fund, he said.
“The supply will increase, but whether demand increases will come down to the quality of the assets,” he said.
BC Partners, which has more than €40 billion ($43.7 billion) in assets, could list two or three more portfolio companies globally over the next 18 months, Stathopoulos said, declining to identify them. The group has more exit options for its portfolio of close to 30 investments because they generally sit on the upper end of the market for midsize companies, he said.
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