Private equity firms seize on IPO boom with consumer assets

Private equity firms are refusing to be left out of the initial public offering (IPO) boom.

With technology IPOs sometimes doubling on day one, buyout shops are hoping to capture some of the buzz for their less sexy, slower growth and higher leverage assets. Two private equity-backed companies went public on US exchanges last week, with two more filings last Friday for listings.

Apria Inc, owned by Blackstone Group Inc since 2008, submitted its filing to the US Securities and Exchange Commission, showing modest gains in profitability last year. The Indianapolis-based company provides home medical equipment, such as oxygen machines.

Minutes after Apria’s filing, PurposeBuilt Brands Inc, whose biggest backers are Carlyle Group Inc and TA Associates, filed for a listing. It owns cleaning product brands such as Weiman and Green Gobbler.

Both companies listed the size of their offerings as US$100 million, placeholders that will likely change.

Assets that might otherwise receive a lukewarm welcome from investors could get a boost from the enthusiasm that has carried over from last year’s record of more than US$179 billion in IPOs on US exchanges. Excluding special purpose acquisition companies, January’s 11 IPOs are up 68.6 per cent on a weighted average basis, with only one trading below its offer price, according to data compiled by Bloomberg.

“The IPO pipeline, in particular, is quite robust,” said Chris Malik, managing director at KeyBanc Capital Markets. “Financial sponsors will continue to monetise longstanding investments based on strong valuations for public companies.”

Petco Health & Wellness Co, backed by CVC Capital Partners and Canada Pension Plan Investment Board, rose 63 per cent in its trading debut. The pet-oriented retailer, still controlled by those investors, said it will use the US$994 million in IPO proceeds to pay down debt.

Unlike technology or venture capital-backed enterprises, these companies, often a portfolio of brands assembled by the buyout firms, tend to change hands from sponsor to sponsor and have a longer history. The company or its sponsors also tend to bolt on acquisitions to fuel growth, a manoeuvre that almost inevitably adds debt as well.

Source: Business Times