Private equity could drive UK company listings revival

LONDON Wed Mar 20, 2013 8:17am GMT

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LONDON (Reuters) - A trickle of British company stock market listings in London could gain momentum if a more receptive mood among investors persuades private equity firms the time is right to sell.

New listing activity in London has been dominated by international companies over the last few years. Since 2008, British-domiciled firms have accounted for just over a third of the London main market debuts raising more than 100 million pounds, according to Thomson Reuters data.

But so far this year the balance has shifted in favour of British firms.

British estate agent Countrywide priced its London share sale at the top of its range on Tuesday. This followed house-builder Crest Nicholson (CRST.L), which completed a London share sale in February.

As well as Countrywide and Crest, three other British firms are planning to complete London listings this month. In total, the five are seeking as much as 1.4 billion pounds, almost four times as much as was raised in London by the same point in 2012.

Although international companies are expected to retain their dominance over the coming months, a backlog of private-equity-owned businesses which the buyout firms are waiting to sell could help to boost the proportion of home-grown listings.

"There are a lot of good domestic businesses owned by private equity for whom the obvious exit really in many situations ought to be the public markets," David Vaughan, UK and Ireland Head of Initial Public Offerings at Ernst and Young, told Reuters. "The dam which is still not bursting is private equity owners being willing to bring companies to IPO (initial public offering) here in the UK."

Countrywide, due to make its market debut on Wednesday, is backed by private equity groups Oaktree Capital (OAK.N), Apollo Global (APO.N) and Alchemy. Cabling equipment maker HellermannTyton, one of those currently taking orders for its sale, is owned by buyout group Doughty Hanson.

"Private equity players will be watching those very closely," said Vaughan.

Investors will be too.

INVESTOR MOOD SHIFT

Private equity companies buy businesses and aim to sell them or list them on the stock market at a profit. A 2010 study from Cass Business School found private equity-backed listings outperformed in the longer term. But a few more recent high-profile flops have left investors with a bad taste.

British department store Debenhams (DEB.L) is a much cited example. It plunged 14 percent in the weeks following its May 2006 listing and hasn't traded above its offer price since November that year. Any investors who bought when it listed and still hold their stock are now sitting on a 57 percent loss.

Electronic whiteboard maker Promethean World (PRWP.L), listed by Apax Partners in 2010, is languishing at less than a tenth of its float price.

But a strong performance from some London listings in the past few months and a 9 percent rise in Britain's FTSE 100 .FTSE blue chip index this year have helped to increase investors' willingness to consider offerings more broadly, including private equity-backed share sales.

Insurer Direct Line (DLGD.L) has risen 17 percent since its October flotation, while Crest Nicholson is up 22 percent.

"UK investors were perceived to be less amenable to private equity-backed assets than, for example, their US counterparts and that is why you have seen a very active flow of IPO activity in the US by private equity and less in the UK," Lorcan O'Shea, Managing Director and head of UK Equity Capital Markets at Deutsche Bank, said. "That has definitely thawed very noticeably."

Several bankers said British investors had been showing more interest in companies being brought to London, while US investors, who had been steering clear of Europe as the euro zone crisis was unfolding, were also beginning to look for opportunities again.

An Ernst & Young survey of investors worldwide last month found Britain was their preferred European investment destination, with attractive pricing considered the most critical success factor for listings.

That view was echoed by the head of equities at one large British fund manager.

"When they're priced to go, then people get interested," he said. "Crest was very cheap, Direct Line was very cheap."

Countrywide on the other hand was more aggressively priced, both he and others in the market said. The hope on all sides is that this will not backfire.

"People feel (the market) is open for business but it is early days as yet," said one equity capital markets banker. "It only needs one badly executed IPO, then people will find it more difficult to shrug that off."

(Additional reporting by Chris Vellacott. Editing by Jane Merriman)

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