The year of the golden exit, possibly

By Paul Mackintosh - 17/03/14

In a period that seems to have shown something of resurgence for private equity across several stages in its life cycle, 2014 looks as though it might be shaping up as the year of the golden exit. As detailed in quite a number of media sources, Warburg Pincus looks set to reap a 4.5 times return multiple and up to 50% internal rate of return (IRR) from the London flotation of portfolio company, UK discount retailer Poundland. Some cynics would doubtless call this profiting from the impact of the GFC in the UK, but there is no doubt that Warburg Pincus has done well out of an asset that many Brits find essential. And the IPO's performance says plenty about the revival of listing prospects in the UK and elsewhere, as well as the savvy pricing strategy of its backers: Poundland jumped 20% on its trading debut.

This comes on top of reports that London is due to book a record-breaking quarter for listings. But it's by no means only London that is seeing this strong tailwind. Danish cleaning and catering company ISS Holding has just listed in Denmark's biggest IPO since 1994, rewarding investors including Ontario Teachers' Pension Plan, EQT, Goldman Sachs, and private family funds. Copenhagen is hardly the first place that any international investor, private or otherwise, would normally look for a big return, but in this case the buoyant markets have allowed the investors to reap the rewards from their initial 2005 privatisation of the business, finally after a previous abortive IPO attempt and an equally dud trade sale exit plan, both in 2011. ISS rose 15% on its first day of trading, again partly thanks to smart pricing by the sponsors.

Then there's Permira, not always the luckiest private equity group lately, but clearly flush now, after reaching agreement with industry peer Hellman & Friedman LLC to sell its education analytics portfolio asset Renaissance Learning Inc for US$1.1 billion, quadrupling its 2011 investment, according to Bloomberg's figures. The deal may help Permira close its fifth buyout fund, which had previously been struggling, above its 5 billion euro (US$7 billion) target. But it also speaks volumes – US$1.1 billion of volume, to be precise – for the amount of newly raised capital and (relatively) cheap debt now available to private equity firms to buy assets, even slightly used ones. And the stock resurgence that has driven up the value of portfolio assets and enabled funds to list companies long held on their books is also likely to keep entry prices high for new investors. Expect some very striking price tags, as well as exit figures, in the months ahead.