up well against the backdrop of a slight fall in the FTSE All-Share since it’s float.


It is clear to all market participants that the reasons for the lower number of PE IPO exits are complex, but when boiled down seem to fall into three main areas:


n Pricing – Can the public markets be competitive when compared with other options particularly for highly leveraged businesses?


n Clean exit – PE generally prefers a full rather than partial exit from investments.


n History – Many public investors still feel bruised by high profile PE-backed IPOs whose share price fell sharply very soon post-IPO.


This lack of PE-backed IPOs has also led to many houses having a declining level of knowledge of the IPO process and an understanding of how to successfully support management teams to navigate it, building another barrier to IPO as an exit method.


For any company thinking of an IPO, it is essential to be able to act proactively in the face of the challenges in the way of success. Ultimately, companies and their advisors have to find a way to navigate through highly volatile market conditions to be able to float their businesses successfully. Businesses also need to be mindful to develop better relationships with investors, and not just rely on a single ‘point-in-time’ interaction (such as IPO roadshows alone) to convince investors on their growth potential.


This is also true of the private equity investors. We have seen an increasing trend of private equity being much more visible in the process and actively engaging in communications with the institutional investors throughout the IPO process. This increased transparency is seemingly welcomed and serves to break-down the ‘mistrust’ elements of the PE/Public debate.


Looking ahead In June each year Ernst & Young hold an annual IPO Retreat event (2013 will be the 10th consecutive year). This two-day conference is aimed at companies that are considering floating in the next 6-36 months. So far in 2012 we have seen a healthy appetite amongst both UK & international businesses, including a good proportion who are private equity-backed. This is an encouraging sign of the slowly renewed optimism that appears to be returning to the market.


We estimate there to be hundreds of businesses that have been under private equity ownership for four years or more in the UK and who actively looking to transact. Many of these management teams and private equity owners of these businesses are in the process of reviewing their options and there is real concern that there is not enough demand in the secondary/tertiary and trade markets for the number of businesses looking to raise capital.


It is for this reason that an active IPO market for PE-backed business is of real importance for the continued growth and success of the private equity sector in the UK. n


Company Profile


Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.


How organisations manage their capital agenda today will define their competitive position tomorrow. We work with our clients to help them make better and more informed decisions about how they strategically manage capital and transactions in a changing world. Whether you’re preserving, optimizing, raising or investing capital, Ernst & Young’s Transaction Advisory Services bring together a unique combination of skills, insight and experience to deliver tailored advice attuned to your needs – helping you drive competitive advantage and increased shareholder returns through improved decision making across all aspects of your capital agenda.


Risk and Insurance in Private Equity and M&A 2012/13


Author Viewpoint 43


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