This article is excerpted from Duane Morris’ publication “Heading for the Exit” based on a recent live event in Philadelphia featuring insights from NewSpring Capital; Raymond James; Grant Thornton LLP; and Relay Network. For sources, ,see http://www.duanemorris.com/site/private_equity_connections.html.
By the end of 2014, global M&A volume had already breached the $3 trillion mark for the year, up 32 percent over the similar period in 2013, as companies took advantage of rising stock prices and cheap credit, 2014 was also a big year for IPOs, which jumped more than 47 percent from the previous year to nearly $84 billion; U.S. listings were the highest since 2000. Financial sponsors continue to account for the majority of the value of IPOs—just over 60 percent in 2014—indicating it was another good year for investors of private equity funds.
Panelists at the Duane Morris event were generally upbeat, with Mike DiPiano of NewSpring Capital observing that he did not see interest rates rising much; hence, “there’s going to be debt available.” In addition, “There is a fair amount of capital with buyout shops like ours that are paid to put money to work,” which would encourage the industry “to continue buying” and the “the IPO market to perk up.”
David Clark at Raymond James & Associates, agrees—“[I]nterest rates may go up, but [not] by that much, so there’s still plenty of capital out there.”
Turning the spotlight on another leading indicator, John Stine at Grant Thornton LLP said his firm is “unbelievably busy on transactions right now,” which is not the norm for [year-end 2014].
In Clark’s view, 2015 “is going to be another strong year” and, barring unforeseen events, with a solid IPO market. The question on the seller’s mind is: “Is this a good time to exit, and if so, how is the best way to do it?” That said, from a buyer’s perspective, “The market is very frothy with a lot of capital chasing deals,” Clark observes.
Indeed, the successful exit market last year, which saw private equity funds return an expected $479 billion globally, is likely to create an even more crowded deal market in 2015 as investors re-invest. According to Preqin data, the proportion of funds that reached or exceeded their “hard cap” (i.e., maximum amount the firms set out to raise) in 2014 was at its highest level since 2009.
DiPiano agrees with Clark that it has been a good IPO market, thanks to plentiful debt and high stock market valuations. “We are seeing a number of successful IPOs and a very strong pipeline,” so it is clearly an option now, Clark observes. “Part of the reason the M&A market is attractive is due to the positive IPO market.”
