Private equity firm Bridgepoint Group PLC has confirmed its intention to float on the London Stock Exchange to help enhance its standing and raise funds.
As indicated when the former Pret a Manger owner and Deliveroo backer first notified of its intended initial public offer last month, the group verified that it plans to raise £300mln by issuing new shares and existing shareholders will also be selling some shares so there is expected to be a free float of around 25% with the potential for an extra 15% under an over-allotment option.
READ: Bridgepoint IPO to shed light on secretive world of private equity
With an expected market cap of around £2bn the company would quickly slot into the FTSE 250 index.
The IPO is being run by JP Morgan Cazenove and Morgan Stanley, with BNP Paribas, Citigroup and Merrill Lynch as joint bookrunners.
A flotation for a private equity company seems to run counter to the whole raison d'etre of the industry, suggests Russ Mould, head of investment at AJ Bell, while also bringing back bad memories of Blackstone’s and Fortress's less-than-ideal flotations back in 2007.
“The whole point of being a private equity (PE) company is the word ‘private’ – they can invest for the long-term, away from the scrutiny that comes with being a public company and all of the requirements that brings when it comes to reporting to shareholders and being accountable to them. We are also regularly informed that private equity is awash with cash and making good returns, so potential investors need to ask themselves why they should be buying if some existing shareholders are selling.
“Bridgepoint’s answer will be that private equity offers exposure to a non-correlated asset class – one which does not move slavishly in line with stock or bond markets – and therefore provides useful diversification across a balanced portfolio."
Mould added that private equity managers can also point to their performance track record and show how patient investors in their funds can get premium returns, which is partly as an exchange for the so-called ‘illiquidity premium’ as investors cannot quickly withdraw money from private equity funds and their capital is often tied up there for long stretches. This represents a risk, but the returns offered by PE funds more than compensate for that danger, the PE giants will assert.”
He also recalls Blackstone’s float back in 2007, when the private equity giant came to market when it looked like neither they nor financial markets could do no wrong, only for the Great Financial Crisis to come and blindside everyone almost straight away.
“It all worked out well in the end but it was a hairy ride to start."
Fortress had "equally bad near-term results (and even worse long-term ones)", Mould adds, after floating at US$18.50 and ending up back in private hands after being snapped up by Japan's Softbank for US$3.3bn after 10 years at around $8 apiece.