Exit strategies by private equity firms in the nordic region : An empirical assessment of IPO performance across private equity-backed- and non-backed firms and a qualitative assessment of exit strategies by private equity firms

摘要

This study investigates underpricing of private equity (PE)- backed IPOs and the various exitroutes available to PE firms. First, we examine whether IPO underpricing differ across PEbacked-and non-backed (NB) firms employing different empirical techniques. Our finaldataset consists of 60 PE-backed- and 155 NB IPOs listed on Nordic exchanges (2005-2014).Second, we investigate exit strategies- and (potential) interrelation between entry and exit byPE firms, through interviews with partners from renowned PE firms (Altor, EQT, FSNCapital, Herkules Capital and HitechVision).We found PE-backed IPOs to be significantly less underpriced than NB IPOs, consistent withprior research. Interview respondents attribute our result to i) PE-sponsors may be superior attiming- and promoting IPOs and/or ii) PE-sponsors may strive to maximise the offer price toboost proceeds. Consensus in prior research attributes our finding to PE-sponsors being ableto certify true firm value in IPOs. Moreover, we document significantly lower underpricing ofventure capital - compared to buyout-backed IPOs. Finally, we find that underpricingincreases with the aftermarket volatility (and thereby the risk) related to an issue, independentof PE-backing.Respondents from interviews listed price, transaction risk and divestment efficiency as themost important factors determining choice of exit route. The majority expressed strongpreference for trade sales (ceteris paribus) as it enables efficient divestment and commonlyprovides superior pricing. In contrast, IPO appeared to represent the least favourable exitchannel due to inefficient divestment and extensive regulation. However, the respondentsunderlined that IPOs may represent the preferred exit for particularly successful (and large)portfolio firms, as it “enables participation in future value creation while at the same timetaking some “risk off the table”” - Respondent 4. Finally, we find that exit opportunitiesrelated to an investment case may have decisive implications for whether PE-sponsors enteror not.