IPOs getting a buzz kill?

Posted Nov 2nd 2009 4:30PM by Tom Taulli
Filed under: Private Equity, Blackstone Group L.P (BX)

Going into the summer, it looked like the IPO market was poised for a resurgence. For example, the Blackstone Group (NYSE: BX) said that it planned on taking eight companies public.

Despite the enthusiasm, things haven't panned out. According to the Wall Street Journal [a paid publication], five of the last nine deals for October priced below their ranges. In fact, last week AEI wasn't even able to pull off its offering.

Of course, the volatility in the equities markets hasn't helped. There are also uncertainties about the strength of the economic recovery.

Yet, there may be even a more pressing problem; that is, investors are resistant to private-equity backed deals. After all, these companies are chock-full of debt -- which could make them vulnerable if the economy falls again.

However, private equity firms really need to find ways to get liquidity. For example, according to Bloomberg.com, there were about $2.1 trillion in buyout deals since 2004.

So, what do private equity firms do if the IPO market continues to be anemic? Unfortunately, it will likely be terrible for returns and there will probably be more bankruptcies. No doubt, this underscores the sentiments of billionaire investor George Soros, who recently said that there will be a "bloodletting" for buyout deals over the next few years.

Tom Taulli is the author of various books, including The Complete M&A Handbook.

Tags: aei, bx, inthenews, IPOs