A great deal of attention has been paid to the private equity boom, with a primary focus on what companies these firms are buying. However the inevitable consequence of these purchases is an eventual sale. While some private equity exits occur between private equity firms, the highest profile exit involves an initial public offering (IPO).
The Burger King (BKC) IPO is expected to price this week. Grace Wong at CNNMoney.com looks at the state of the company coming into the offering. While the company has seemingly turned around under the tutelage of their private equity owners there are some complaints about the nature of the deal. The proceeds of the deal are going to fund a dividend up to the company's PE owners.
This begs the question – how do private equity IPOs perform? Steve Gelsi at Marketwatch.com explores this question and the overall state of the IPO market. Academic research has show that on average PE-backed IPOs perform, over time, in-line with the overall IPO universe. Of course investors need to analyze each deal invidivually with an eye on the potential for a short-term pop and the firm's longer term potential.
Some analysts examine PE-backed offerings to gauge the ongoing interest of the firm's backers. High debt levels, and high dividends can serve as a warning that the PE firms are simply looking to cash out. This is in contrast to putting the IPO proceeds to work in the firm as a means of creating a more viable future competitor. We guess that many investors will balk at deals that simply serve to cash-out PE investors.
One consequence of the private equity boom is a subsequent boom in investment banking fees. DealBook highlights the rapid rise in the price of many investment banks, but especially the boutique firms. This has prompted Evercore Partners to file for their own IPO. One question for investors need to answer before participating in an Evercore offering they need to ask whether the bright prospects are already priced into the shares.