FINspeak

There are few more overplayed terms than “green shoots”, but I could not help myself and ended up joining the fray in this review on Private Equity (PE). IPOs are one obvious exit for a portfolio holding company and would indicate some life back in the market. Considering that year to date numbers have been so dismal, it is good to see things picking back up even at this slow rate. Many PE firms I have been talking to feel their portfolio holdings will be expanding long before contracting so there is rapid recovery going on here. However, what is interesting to me is how well one particular buyout firm is looking to do in the short term.

KKR may have the darling of the IPO market in the US with Dollar General which has been performing extremely well in this tight market. Speculation continues about the timing of KKR’s own pending IPO which appears to be following the infusion it will get from floating Dollar General. KKR also has stakes in Avago, HCA, TDC AS and Toy “R” Us which are all slated to go public. This should bode well for the KKR funds and their cash positions for acquisition activity. Bain Capital and Permira will get some relief with their stakes in HCA, Dunkin Brands, Toys and TDC AS, Bird’s Eye, Acromas respectively. Obviously, the size of the IPO is more important than the sheer number in terms of return, but it is an indicator that assets are being moved. Providence Equity Partners also has some activity pending from their stakes in TDC AS and Education Management Corp. Another notable transaction would include United Biscuits in the UK, a Blackstone holding that should be a larger deal. There are many other private equity owned firms in the pipeline to be floated as well, just will be smaller individual deals. Overall, this is at least a positive uptick in my opinion.

A contrarian view to this situation is that PE needs cash and is simply pushing these companies out the door sooner. Fair enough statement, but PE needs returns and not cash due to the considerable overhang left from past fund raising (see a previous post “Private Equity Dry Powder” http://www.infosysblogs.com/finspeak/2009/06/). If the asset is not ready, its poor performance will only further drag down overall fund returns. While I can somewhat believe they could be rushing, it could not be the only reason. Now let’s hope this ‘V’ movement doesn’t become a ‘W’, with is a subject for a different time.