Pacific Equity Partners says listed equities investors’ demands for steep discounts are making ASX floats harder, particularly for companies too small to enter major sharemarket indices.
Rohan Wolfers, a managing director at the Sydney-based private equity firm, says PEP wanted to float more companies in public markets but was worried about cautious investors and limited sell-side research and index inclusion for small- and mid-cap companies.
“We seem to be in an environment where public market investors are a bit afraid of investing into IPOs, and so it’s been difficult for us to do them,” Wolfers said, adding that the buyout firm had not completed an initial public offering in about a decade.
“Ultimately, if we have public market investors who aren’t going to look for an IPO discount that’s extremely substantial, then we’d do more IPOs,” he said.
Wolfers said PEP might buy a business for $500 million and seek to list it for $1 billion. PEP has been a heavy buyer of ASX-listed small caps, including deals to acquire oOh!media and FleetPartners in the past two months, but the same things that made smaller ASX-listed companies attractive acquisition targets weighed on their prospects for a return to market.
He said larger businesses capable of S&P/ASX 200 or ASX 300 inclusion were more obvious float candidates.
PEP’s Rohan Wolfers.
“We just want to make sure we’re getting enough public market investor coverage,” he at the Citi Australia and New Zealand investment conference.
The comments come after another year when private equity has poached well-known companies off the ASX, and given back little by way of IPOs. Potential floats of Greencross, I-med and Estia Health have not happened, with the latter two businesses sold to new private equity owners instead.
Bain Capital principal Sam Payne, whose firm floated Virgin Australia last year but not Estia Health this year, said public markets were an essential exit option for larger investments, despite the difficulties of listing businesses over the past five years. He said there was a narrow pool of potential buyers for companies worth billions of dollars.
Payne said Virgin Australia’s float gave it greater confidence to pursue future IPOs, although it required patience. He said Australian investors’ reluctance to accept heavily indebted companies was another obstacle.
Companies have raised $2.6 billion in Australian IPOs this year, according to Dealogic data, although more than half of that is for listed investment trusts and companies.