Is the initial public offering dead?
For private equity firms that once saw taking portfolio companies public as an attractive exit strategy, the answer could be yes.
“We’re of the opinion that there is a permanent shift to the private markets,” said David Layton, chief executive officer at Partners Group, a $131 billion publicly traded private equity firm. “Historically, investors went to the public market to access bedrock companies and went to the private markets like venture capital to speculate.”
Now, he added, the opposite is true. And the data bears this out.
As of June 30, there had been 630 global initial public offerings in 2022 — a decrease of 46 percent year-over-year, according to data published by EY. The capital raised in those offerings — $95.4 billion — had also decreased significantly, down 58 percent compared to the same period last year.
And although special purpose acquisition company IPOs boomed in 2020 and even 2021, that corner of the market dried up in the first half of 2022, as Institutional Investor previously reported.
“The glory of going public is no longer there,” Layton said. “Companies can meet their capital needs elsewhere.”
For years now, private equity firms have been raising massive pools of capital to put to work in the private markets, buying and selling companies to strategic buyers or other private equity firms rather than exiting companies by taking them public.
For instance, Partners Group last month announced that it was selling half of its stake in utility location services provider United States Infrastructure Corporation to fellow private equity firm Kohlberg & Co. Partners Group had acquired the company in 2017 from affiliates of private equity firm Leonard Green & Partners. Four years prior, Leonard Green had purchased the company from the Ontario Municipal Employees Retirement System’s private equity business in 2013.
Although USIC had seen its fair share of private equity owners, Layton said there was still value to be created at the company when Partners Group bought the stake.
“When we acquired, we decided to change systems and processes,” he said. “We improved the earnings profile by 77 percent.”
While Partners Group has sold off half of its stake in USIC, Layton said the firm has more broadly been taking a more measured approach to exits this year. “We will never be forced to sell in an environment,” Layton said. “We have some assets that we’ll get liquidity on this year, but we’re not pushing anything into the market.”
And Partners Group hasn’t written off the IPO completely. After all, brand hype is a powerful thing.
“The reason to go public today is valuation arbitrage,” Layton said. “We have looked at that. Some companies are abuzz with public interest. With some brands, there is potential.”