Private equity cashing in as investors swamp sharemarket
Private equity companies are offloading assets to sharemarket investors at a rate not seen since before the global financial crisis, as the sector rushes to cash in on strong investor demand.
The Australian Private Equity and Venture Capital Association said on Tuesday that PE funds sold $866 million in assets through initial public offerings in the year to June, the highest level in five years.
But the float frenzy in the months since June suggests the milestone will be easily eclipsed in the current financial year, prompting calls for caution among investors who are considering buying the new stocks coming to market.
The association's chief executive, Yasser El-Ansary, said he expected significantly more assets to be divested in 2013-14 compared with 2012-13, in response to the strong market conditions and a perception of greater political stability.
"The outlook for this financial year is a really positive one for the market," Mr El-Ansary said.
"There's a noticeable shift in momentum in business confidence, particularly on the back of the strength in the equities market."
This week alone, private equity-owned Dick Smith will float on Wednesday in a deal worth about $340 million, while credit information provider Veda is planning to raise a similar amount from investors.
Channel Nine will make its much-anticipated sharemarket debut on Friday, in a float worth more than $2 billion, the biggest of the year.
Travel insurer Cover-More, also owned by private equiteers, has also said it would join the rush to float before the end of the year. It plans to raise $521.2 million from investors, with normal trading in its shares set to start on Christmas Eve.
Amid the flood of IPOs, the chairman of fund manager Cadence Capital, Karl Siegling, stressed the need for caution. He said that ordinarily only about three out of 10 companies that listed were successful, and the failure rate was likely to be even higher in the current rush to float.
Some of the private equity companies being listed had been starved of capital, he said, or could not be divested through a trade sale.
He said this suggested investors should be extra-cautious about companies they knew much less about, compared with firms that had been listed for several years.
"It's buyer beware with IPOs, because you're buying something for the first time," Mr Siegling said.
The recent wave of sharemarket listings has occurred against a backdrop of a search for yield, which inevitably prompts investors to take more risk.
While some IPO stocks perform strongly, he said the better investments were often those with less hype surrounding them, which could sneak under the radar of many investors.
"The frenzy at the moment is being driven by sellers," he said.
Although the float market has been heating up lately, it comes after a soft period for private equity.
AVCAL's figures showed private equity funds raised $711 million over the year, a sharp decline from $3 billion in the previous year. New investments were also lower, falling 8 per cent to $2.76 billion.