Private equity backed IPOs in Australia haven't all been spectacular heists

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The performance of private equity floats in Australia are far better than recent comments sparked by the failure of Dick Smith might suggest.

A dollar invested in all 40 ASX private equity floats over the three years to the end of 2015, including those with negative returns, would have delivered an average gain of 48%, according to analysis by Deloitte.

The collapse of consumer electronics retailer Dick Smith, which was floated by Anchorage Capital Partners, was labelled the greatest private equity heist of all time with a reported outlay of $10 million cash turned into a public sale of $520 million.

But overall the returns are positive. Deloitte calculated the returns from private equity-backed IPOs compared to the ASX 200:

Source: Deloitte

“Results are far more positive than market sentiment reflects,” says Tapan Verma, Deloitte’s director of IPO transaction services.

“Our findings, consistent with (venture capital industry group) AVCAL research and studies in December 2015 show that private equity exits over a longer period have on average exceeded non-private equity IPOs.”

Of the top 20 performing IPOs in 2015, three were private equity floats.

Among them was Anacacia Capital’s tech company Appen Ltd, the top performer of all IPOs that year, which closed the year with its share price up 230%.

The other two were skin care company BWX Ltd from Magnum Capital, with its share price closing the year 138% higher, and TDM Asset Management’s Baby Bunting Group Ltd which gained 70.7%.

Here’s how all the private equity IPOs performed in 2015:

Source: Deloitte

Overall there were 97 ASX IPO listings in 2015, up by a third on 2014, with a market capitalisation of $17.6 billion and capital raised of $8.6 billion.

Technology was the dominant sector in private equity listings, consistent with the overall IPO market. These listings accounted for $1.8 billion of capital raised or 48% of raisings.

Chris Hadley, the executive chairman of Quadrant, says private equity transactions today are also much more sensible than they were 10 years ago when there was more money in the market and a higher tolerance for risk.

He believes private equity needs to improve its public image.

“A high profile collapse, such as Dick Smith, or a poor performer typically gets an unfair share of coverage, ignoring the success stories that actually make up the majority of activity,” he told Deloitte’s 2016 IPO Report.

He says the market is starting to expect private equity to stay involved longer post-IPO, particularly to deliver the prospectus outlook and to maintain continuity of leadership.

“As such, private equity firms will need to warm up to the idea of holding more skin in the game outside traditional two to three year sell-down windows,” he says.

Private equity listings are expected to be more more subdued in the year ahead.

“Regaining investor confidence will be key for the industry as several general partners line up companies for their market debut,” says Deloitte’s 2016 IPO report.

One potential big listing this year is a $1 billion IPO for KKR-backed GenesisCare, Australia’s largest radiotherapy services provider.

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