The European IPO pipeline for 2015 looks promising – and more pan-European – with new deals coming from several countries after the UK's dominance of issuance for the past few years.
That’s according to a new report by Standard & Poor's Ratings Services.
Equity prices have shot up since the start of the year, with the FTSEurofirst 300 Index rising more than 15% to March 11 from the beginning of January. This is causing many private equity firms to run dual-track sale processes, with public listings edging out private sales at the moment. Although the number of deals announced thus far in 2015 is still lower than in the first quarter of last year, the average transaction size has been much larger. And while it's still early, we're beginning to observe a broader distribution of IPOs across Europe than in 2014.
"There remains a lot of pent-up demand among private equity firms to exit certain businesses, particularly among sponsors that purchased companies right before or after the financial crisis and are looking to realise returns," says Standard & Poor's credit analyst Taron Wade. "But investors are still being cautious. Only companies with positive growth stories that have performed well throughout the downturn are able to go to the public offering market."
The debt reductions and phased step-downs in private equity ownership that typically result from an IPO often improve credit quality and lead to rating upgrades. We also see improvements to companies' management and governance frameworks in preparation for the greater oversight and fiduciary responsibilities that a public listing entails. Of the 16 publicly rated private equity-owned companies that have completed IPOs since 2003, we've raised our ratings on 11. Also, a healthy IPO market for private equity exits can help curb the number of dividend recaps in Europe's leveraged finance market.
