EY: PE-backed IPOs reaches highest level in 16 years

14 January 2015 Consultancy.uk

The exit market in 2014 has performed well, data by EY shows, with the highest level since 2007. PE-backed IPOs was a popular strategy and reached the highest level in 16 years, numbers that suggest a recovering European private equity industry. EY expects this trend to continue, although it does not foresee the same level of PE-backed IPOs in 2015.

Recently released data* from professional services firm EY shows that the exit market performed well in 2014, with exit value of above €101 billion the highest since 2007 and only the third time it crossed the €100 billion mark. Especially private equity-backed initial public offerings (PE-backed IPOs**) proved to be a popular exit route. In the UK, exit activity reached a record of £28.8 billion, compared to £23.4 billion in 2013, and IPO value was the highest since records began at £16.2 billion.


Sachin Date, Private Equity Leader EMEIA at EY, explains: “PE-backed IPOs are at a record high since 1998 with 43 PE-backed IPOs worth €44 billion closing in 2014, as financial sponsors continue to capitalize on strong valuations.” Date continues: “The top 10 PE exits by value – five were IPOs, four were trade sales and only one was a secondary buyout. And if corporates were on the side-lines in previous quarters, this time around we are witnessing corporate activity picking up with values higher than before. The increased IPOs and trade sales values make up for the decrease in secondary buyout values.”

Sachin Date - EY

Looking forward
The trend suggests a recovering European private equity industry, which, according to the consulting firm, is likely to continue in 2015 - in line with progress made in the last two years. Private equity deal values are expected to increase in the next year with pending deals in the pipeline of around €20 billion in the coming months. The advisory, however, does not expect a large appetite for PE-backed IPOs to sustain in 2015. “It is likely that we will see less of PE-backed IPOs in 2015. But we expect to see more corporates buying and selling assets. Whether a strong pipeline will translate into a fully recovered European private equity industry is yet to be seen, but the signs are clearly encouraging.”

* The data has been released by the Centre for Management Buy-out Research (CMBOR), and is sponsored by EY and Equistone Partners.

** With an IPO, which refers to the first sale of stock by a private company to the public, the issuer receives assistance of a backing firm, for instance a private equity firm, which determines the price and best time to market the stock.


8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.