Report: Private Equity Groups Buying Back Firms After Weak IPOs

Amid a shaky IPO market, some public companies aren’t staying public that long.

As the Financial Times (FT) reported Tuesday (Nov. 21), private equity firms have begun buying back companies that have recently gone public to salvage investments that have performed badly on the stock market following an initial public offering (IPO).

The firms include EQT, Cinven and Silver Lake, the report said, all of which have in recent months taken private or considered buying back public companies they owned or in which they held a minority stake.

The FT says the tactic spotlights how tough it has been for buyout groups to exit their portfolio companies through public markets, something that has long been a key revenue source. The report cites data from Dealogic showing that in 2021 — when public markets hit record highs — buyout firms floated a record 287 companies worth just under $140 billion.

“IPOs sometimes bring their own challenges,” Alastair Brown, a partner at the law firm Freshfields Bruckhaus Deringer, who works with private equity companies, told the FT.

“There are those examples where the public markets haven’t taken to companies in the way the sponsor would have liked, there has been volatility in the share price or there hasn’t been liquidity for sponsors to sell out.”

Shares in many companies taken public by private equity firms in 2021 have fallen well below the price at which they initially floated, presenting a chance for the firms to buy them back cheaply, according to industry executives.

“We’ve only seen the beginning, clearly there will be more,” the head of equity capital markets at one large European private equity house said.

As covered here last month, just $47.6 billion had been raised in initial public offerings on U.S. exchanges since the beginning of last year, which is less than all the money raised in the final two months of 2021.

“This collapse in the IPO market has affected companies’ access to capital, leading to job cuts in banks, and limiting the ability of longtime backers to cash in and reinvest funds in other opportunities,” PYMNTS wrote.

This year has also seen a string of IPOs by companies whose listings were met with fanfare but eventually slumped, including marketing automation platform Klaviyo, chipmaker Arm, grocery delivery platform Instacart and sandal company Birkenstock.