PE Forces the Exit Doors Wide Open
FEBRUARY 2015
Private equity-backed IPOs rise in 2014
Growth in PE-backed share of IPO market
40%
Last year was a buoyant one for global private equity (PE)- backed
initial public offerings (IPOs). PE-backed companies raised US$91
billion from 149 deals, an increase of 94 percent by capital raised,
and 41 percent by deals closed over 2013.
30%
20%
PE-backed IPOs have been an increasingly important driver of IPO
activity over the past two years. They now account for 36 percent of
the overall IPO market by value, up from 28 percent in 2013, and 12
percent by deal volume, holding steady with 2013 levels.
10%
0%
Market
Share
(%)
2009
2010
2011
2012
Mkt Share (Value)
Capital
Raised
(US$B)
100
90
80
70
60
50
40
30
20
0.9
10
10.0
0
2009
2013
2014
Mkt Share (Vol)
Uptick in cross-border activity
PE-backed IPOs
# of
Deals
33.3
150
125
100
5.3
7.3
4.8
18.9
23.4
2010
2011
Domestic Value
Domestic Volume
57.6
41.6
50
2.2
25
16.8
2012
75
0
2013
2014
Cross-border Value
Cross-border Volume
PE-backed cross-border IPOs increased substantially in 2014,
particularly deal values. Globally, companies raised US$33 billion
from 22 PE-backed cross-border deals, surpassing 2013 levels
of US$5.3 billion from 18 deals, the highest level of cross-border
activity the market has seen by both value and volume.
The Alibaba Group’s listing on the New York Stock Exchange (NYSE)
in September, in which the Chinese e-commerce company backed by
a consortium of Chinese and US investors raised more than US$25
billion, accounted for a substantial proportion of the increase. Even
without this deal, companies still raised US$8.25 billion in 21 deals,
an increase of 56 percent by value and 17 percent by volume over
2013.
Growth in capital raised from PE-backed cross-border IPOs
outperformed that of domestic listings (which increased 39 percent
in 2014). However, growth of domestic volumes rose 44 percent,
driven predominantly by US (66 deals, up from 57 in 2013), UK (18
deals, up from 8 in 2013) and Australian (12 deals, up from 5 in 2013)
PE-backed companies increasing their issuance in home markets.
"2014 produced a decade high for exit values. We saw private equity sponsors
continue to take advantage of improved market sentiment to dispose of portfolio
investments, with the return of the IPO proving to be a particularly attractive exit
route" - Michael Fieweger, Chair of Baker & McKenzie's Global Private Equity Practice
New York plays a global role
2014 PE-backed cross-border IPOs: Exchange activity and regional deal flows
The US continues to draw PE-backed foreign listings. The NYSE and NASDAQ received a total of eleven
PE-backed, overseas-based company listings in 2014, including six from Europe and the Middle East
(EME), three from China, one from Hong Kong, and one from Canada. Two EME companies, while
domiciled for corporate purposes in Luxembourg, have their commercial operations in Latin America.
Seven of the eleven cross-border listings into the US also involved a US-based PE firm on the investor
side, indicating a tendency for US PE investors to seek exits on their foreign investments in their home
market.
In terms of issuer nations, China provided a steady stream of foreign listings, despite the moratorium
on the domestic IPO market being lifted by Chinese regulators at the beginning of 2014. In addition
to the Alibaba deal, two other Chinese technology companies listed in the US, and seven Chinese
companies listed in Hong Kong.
Implications of rising PE-backed cross-border IPOs
The increased use of cross-border IPOs
as an exit for private equity investments
represents an important development
in the global private equity industry.
Historically, PE has flourished in markets
such as the US and Europe where deep and
liquid capital markets provide an important,
although not the sole, exit route.
In other markets, largely located in Asia
and Latin America, PE investment has been
inhibited by a perceived lack of exit options.
The rise of cross-border IPOs, by providing
an exit route for investors, could portend
the expansion of PE investments in these
markets.
"PE as a global business will develop in parallel with a
global approach to exits, and IPOs will be a vital element
of this. We expect an increasingly important flow of
investments in emerging jurisdictions as funds from
around the world look for new opportunities and followon investments," says Michael Fieweger. "The ability
to access mature capital markets for exits will be an
important factor in the growth of emerging market private
equity investments, particularly given the preponderance
of minority investments and the more infrequent use of
debt in emerging market transactions."
Potential challenges in 2015
PE-backed cross-border IPOs by Chinese companies on US
exchanges marked a tentative re-opening of US exit possibilities
for Chinese companies, following controversies in 2011 and 2012,
which led to the NYSE delisting or suspending trading for more
than 100 Chinese-based companies. The US with its mature
infrastructure and large investor pool, coupled with the success
of the Alibaba deal, may entice more cross-border IPOs on US
exchanges.
However, the increased scrutiny of variable interest entities (VIEs)
structures that Chinese companies often use to list on North
American exchanges to avoid China's restrictions on foreign direct
investment, is drawing increasing attention from regulators in both
the US and China. Any restriction on the use of these structures
may dampen investor enthusiasm for Chinese IPO listings by PEbacked companies.
Analysts predict more volatile market activity moving into 2015.
Increased geopolitical uncertainty has caused a number of IPOs
to be shelved or cancelled in the EMEA region, and in fact the
final quarter of 2014 produced more subdued levels of PE-backed
cross-border IPO activity, with only two companies listing. Further,
while Chinese issuers were a driving force of PE-backed crossborder IPOs until the end of the third quarter, the option of listing
on domestic markets may become more attractive following
the introduction of the Shanghai-Hong Kong Stock Connect in
November, which simplifies investments in Shanghai stocks for
international investors.
“The rapid increase in crossborder IPOs demonstrates
that companies can see real
benefits from looking beyond
their domestic markets
for raising capital,” says
Koen Vanhaerents, chair of
Baker & McKenzie’s Global
Capital Markets Practice
Group. “However, with
warning signs on the horizon,
it is critical that companies
carefully track global market
conditions when considering
their listing options in 2015.”
Methodology
To prepare this report, we sourced data from Thomson Reuters' Thomson ONE Equities database
and used the Standard Initial Public Offering Eligible Flag to identify IPOs. Searches also included
the Private Equity Backed IPO Issue Flag to identify deals in which the issuer was private equitybacked at the time of the IPO. We pulled the data on January 6, 2015 and analyzed it for cross-border
involvement (i.e. IPOs in which the domiciled nation of the issuer was different from the nation of the
stock exchange).
Global Private Equity
Baker & McKenzie’s Global Private Equity Practice Group advises a wide range of financial investors,
portfolio companies and management teams. We have 300 private equity lawyers across Asia Pacific,
Europe and the Americas. With support from a global network of legal resources, we can readily
mobilize and integrate multidisciplinary teams to seamlessly execute cross-border transactions,
structure funds and capture investment opportunities.
Global Capital Markets
Baker & McKenzie’s Global Capital Markets Practice Group is comprised of almost 350
securities lawyers in more than 50 offices, including the world’s leading financial centers.
Over the past five years, the Global Capital Markets Practice Group has been involved as issuer’s
or underwriter’s counsel in more than 530 equity and debt offerings, totalling US$350 billion.
The practice is consistently ranked among the top corporate law firms globally. Additional crossborder listing resources, including the group’s 2014 Cross-Border IPO Index, can be found at
www.crossborderlistings.com and on the Firm’s capital markets blog at www.thecapitaltrend.com.
About Baker & McKenzie
Founded in 1949, Baker & McKenzie advises many of the world’s most dynamic and successful
business organizations through 5,600 fee earners and 5,300 professional staff in 77 offices in 47
countries. The Firm is known for its global perspective, deep understanding of the local language and
culture of business, uncompromising commitment to excellence, and world-class fluency in its client
service (www.bakermckenzie.com).
For further information, please contact:
Michael Fieweger
Principal
Chicago
+1 312 861 8232
[email protected]
Koen Vanhaerents
Partner
Brussels
+3226393769
[email protected]
©2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service
organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.
This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.