Private Equity I.P.O.’s: The Geography Factor

Investors and academics have long debated how private-equity-backed companies fare in their initial public offerings. One camp argues that these companies do worse then their conventional peers because they are often loaded up with debt by their financial sponsors, who are eager for a quick exit. The other camp says they perform just as well, or better, than other I.P.O.’s in the aftermarket. Data from Financial News suggest an interesting wrinkle: It may depend on which continent you are on.
Using data from Dealogic, Financial News determined that in the United States, I.P.O.’s backed by buyout firms outperformed the overall I.P.O. market from 2002 through 2005, based on share prices at the end of last year. This was especially true of 2003- and 2005-vintage I.P.O.s: In both cases, the average return for a private-equity-backed offering was at least twice the return of I.P.O.’s in general, Financial News said.
In Europe, however, the results were far less consistent. Private-equity-backed offerings trailed the others in 2002, 2003 and 2005.
DealBook ran some figures last year on a similar theme, looking at year-to-date performance of 2006 I.P.O.’s in the U.S.. The results, which covered a much shorter timeframe than Financial News’s data, showed that private-equity-backed offerings performed worse — but only slightly worse — — than their non-buyout-backed counterparts.
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