Private equity managers in Asia don't believe that the reopening of initial public offerings in China will pave the way for more profitable sales and enable the industry to gather funds and fuel deals, the Financial Times reported. Asian private equity investors, particularly those in China, have been having difficulty exiting investments due to the sluggish IPO markets in Asia in general and the previous ban of IPOs in China.
In the past, Asian private equity groups have heavily depended on stock market listings to exit their investments. A flood of exits had been expected when the Chinese markets reopened for business this month. However, investors and managers of private equity firms now find that their firms are at the end of the line of more than 700 companies hoping to hold a public listing in China, the report said.
Flag Squadron Partner David Pierce told FT that private equity groups need to have more realistic expectations about their choices for its investments, especially those that are already marked up to the value of an IPO that may not occur. He said, "The idea that the IPO window reopening is going to solve all of our problems is just not true." Flag Squadron is the Asian unit of a worldwide fund of funds business.
Citing a survey done by consulting firm EY and data provider Mergermarket, the report said the Asian private equity industry believes that it will have to wait for a long time before it can rely on a public listing as a way to exit their investments. Last year, there were just 20 IPOs across Asia which raised $2.8 billion which compared with 166 trade sales that totaled $31.5 billion.
In Europe on the other hand, over half of the IPOs last year were from companies backed by private equity groups. There were also big private equity exits done in the US, one of the more popular of which was that of Hilton Hotels which his backed by private equity giant Blackstone. The IPO raised $2.4 billion, the report said.
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