With the IPO market grinding to a veritable halt in 2022, GPs are looking for other exit routes in the second half of the year, with private M&A channels taking the lead.
• 2022 looks set to be one of the worst years in recent memory for IPO exits, following boom last year
• Private equity funds encouraged to accelerate asset disposals through M&A market while they still can
• Strategic buyers with deep pockets remain in play as debt financing tightens for others
With the IPO market grinding to a veritable halt in 2022, GPs are looking for other exit routes in the second half of the year, with private M&A channels taking the lead.
In an industry survey by Private Equity Wire in June, over half of fund managers said they had delayed, or were considering delaying, the exit of an investment in 2022 due to current economic conditions. The findings were examined in Private Equity Wire’s latest Insight Report.
Data from PitchBook found US PE exit value dropped to an estimated $90.1 billion in the first three months of 2022, which is a 57.5% decrease over the previous quarter.
Those with assets to exit are being advised to take advantage of the M&A route and accelerate these processes in the event of a near-term reversal of fortunes.
“If I had a portfolio with a select number of companies which needed to be exited, I would definitely try to accelerate the process,” said Marco Belletti, CEO of Italian buyout firm Azimut Libera Impresa in July. “We’re not sure how the next few months will evolve and if this window of opportunity closes suddenly, then you may have to wait one or even two years to reopen the cycle.”
Coming off a stellar 2021 for exits, IPO activity this year has been lacklustre, to say the least.
According to a note by Schroders Capital earlier this year: “2022 is shaping up to be the worst year for IPO volumes for a long time”.
Prolonged inflationary headwinds, projected interest rate hikes, geopolitical conflicts, and the subsequent volatility of capital markets are all contributing to this but there are still a few sectors that may work well for an IPO exit route, said Belletti.
“As a private equity house, in today’s markets we are only considering IPOs when we are dealing with a sector which has proven to be somehow less linked to volatility with resilient business models and profitable growth, while incorporating ESG (environmental, social and governance) issues as part of their core corporate values – one which has been found to be watertight; bulletproof.”
For Justin DeAngelis, co-head of sustainable infrastructure at investment firm Denham Capital, financial or strategic exit routes have always been more suitable. “Large – $10, $15 billion – infrastructure funds have to deploy a significant amount of capital which is what makes them good buyers for the businesses we build. There are also many strategic players who are looking to deploy capital and grow their sustainable infrastructure footprint. We have interest from both types of buyers all over the world.”
However, an M&A exit may be constrained by the amount of debt financing available to prospective buyers. This situation may favour strategic buyers – large companies with deep pockets that can still raise money at attractive spreads.
Key Takeaway: 2022 is shaping up to be a dismal year IPO exits. Some sectors and assets may still work well for IPO in H2 but GPs may opt to accelerate private sales to strategic buyers
