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17 December 2007

Private equity-backed IPOs outperform market

Initial public offerings by private equity-backed companies in the UK and Germany outperformed the stock market and other IPO listings, two Terra Firma-sponsored academic studies have revealed.

Investors buying an equal share in every UK offering of a private equity-backed company since 1990 and selling after 36 months would have achieved 3.3 times the FT All-Share index and produced average annual returns of 18.4% in the first three years compared with 11.9% for other UK IPOs. In Germany this strategy produced an average 12.1%, more than three times the CDAX index.

They also suggest that the added value from PE ownership lasts at least three years after the IPO. The key driver of performance is the stake the privte equity funds keeps after the IPO.

The link to the Working Papers of Sloan Fellows Christian von Drathen and Flaviano Faleiro at London Business School:

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