PwC: Private equity funded IPOs gain better returns

16 April 2013 Consultancy.uk

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.

PwC - Koersontwikkeling 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.  

Strategic undervaluation

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. 

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Consumer goods start-ups grow interest from venture capital

23 April 2019 Consultancy.uk

Funding the latest consumer goods start-up has been a real money-spinner for venture capitalist firms, with a number of $1 billion companies – or unicorns – having emerged in the space in recent years. New analysis has explored the resulting corporate consumer products activity in the acquisitions space.

Consumer products have enjoyed years of strong growth as new markets opened in developing Asia. China in particular has enjoyed strong growth across a range of consumer good types as the country’s middle class expanded. Private equity firms have been keen to pick up targets in the space as they expand their portfolios to include additional local capacity as well as customers in new markets.

As a result, a study from Bain & Company has found that interest from PE firms in the consumer product space grew sharply in 2018, hitting 6.1% of all invested capital for the year, and making it the third most sought-after category. It is now only behind financial services (23.9%) and advanced manufacturing and services (13.9%).

Corporate venture capital investment

The ‘M&A in Disruption: 2018 in Review’ research found that growth in the segment reflects key changes in the segment as a whole. This is particularly true of insurgent brands, which often leverage local expertise in order to take on international giants in domestic markets.

Short change

The market changes have led to shifts in motivations for consumer goods company investments from PE firms. The number of strategic investments stood at 50% in 2015 compared to deals that increased scope. This has shifted significantly, with 34% of deals focused on strategic outcomes in 2018 compared to 66% for scope. The move towards scope reflects companies seeking out fast-growing products that enable stronger revenue growth streams.

Acceleration in scope-oriented M&A in consumer products

However, there were other motivations for deal activity in the space. Activist investors have put pressure on companies to expand their portfolios in recent years, with the trend expanding from just US targets to Europe.

Further trends

The other key shift in the space regards outbound deal activity. The study found that outbound deal activity has increased significantly in the Americas (up 363%) with total deal volume up only slightly (15%). Key deals included Coca-Cola and Costa, Procter & Gamble and Merck’s consumer health unit, and PepsiCo and SodaStream. In the Asia-Pacific region, outbound deal activity rose 195% while total deal activity fell sharply, by -36%. The EMEA region saw both a sharp decline in outbound deal activity, at -68%, as well as lower overall deal activity, which fell by 32%.

Cross-regional deal making

Deal-making in the current environment is increasingly fraught with uncertainties, as business models change on the back of new technologies, new consumer sentiments and wider market changes from new entrants. As such, acquisitions are increasingly useful as possible hedges on changes in market direction. As such, companies are increasingly pressed to take a future-back position, making sure to incorporate a vision of how the company needs to look in five years into acquisition strategy.

The firm notes that certain acquisitions which enhance a remembrance of a nobler mission, revive a sense of entrepreneurialism and engage directly with consumers may be necessary qualities in acquisitions that transform a company to fit market expectations in the coming decade. While going forward, focus on innovation, partnering with retail winners, reducing cost base and constantly reallocating scare resources will be necessary to protect market share in areas where insurgent local and strategic competitors are active.

Related: Private equity asset growth top priority for 2018.