Research by consulting firm PwC shows that over the past decade, private equity IPOs yielded better results than other stock market debuts. Between 2003 and 2012, companies that were taken public by investment companies booked an average share price gain of 17%, while other newcomers only showed a return of 4.2% in their first year.
The consulting firm looked at IPOs in Europe in which at least € 50 million was raised. Remarkably, the results of private equity IPOs in Europe surpass those in the U.S. In both cases, a PE-IPO performance lies well above that of other IPOs.
"One possible explanation is that companies owned by private equity generally are managed professional and well", says researcher Lisette Spaanbroek in the Dutch newspaper FD. "The companies have been able to benefit from the expertise and contacts that private equity entails". This applies in particular in the Western world, where the private equity infrastructure can be labeled more mature. In Asia, however PE IPOs perform just as strong.
One of the reasons for the better performance of PE-funded IPO’s is the fact that they are strategically “undervalued”. According to PwC private-equity companies. According to PwC, private equity firms and supporting banks increasingly choose a modest valuation in order to make IPO’s a success. For example, the introductory price of Ziggo was €18.50 which was too low for the cable company analysts measured.