Private equity firms are reassessing their exit strategies as the prolonged downturn in initial public offerings (IPOs) shows little sign of recovery. Speaking at the SuperReturn event in Berlin, executives highlighted a shift in focus toward alternative strategies for liquidating investments due to a significant backlog of unsold assets exacerbated by rising interest rates and ongoing market volatility.
Gabriel Caillaux, co-president of General Atlantic, underscored the unprecedented nature of the current environment, stating, “I can’t remember in my 20 years of growth equity investing, not having an IPO window open for this kind of long period of time.” This scenario has compelled buyout firms to explore new tactics rather than abandon their overarching strategic goals. In light of this development, many are prioritizing the sale of businesses in smaller parts, as well as utilizing “continuation funds” to sell companies back to themselves.
Data from Dealogic underscores the stark decline in private equity-backed IPOs, revealing that only nine have occurred in both Europe and the United States this year, compared with 116 during the same timeframe in 2021. This drop underscores the dire circumstances private equity firms face, as traditional exit routes become increasingly constricted.
A senior executive at a major international private equity firm shared insights into this shifting landscape, indicating that IPOs have now fallen to a distant third behind break-ups and sales of minority stakes. The recent actions of firms such as Permira, which sold a minority stake in its €2.2 billion luxury sneaker brand Golden Goose after shelving plans for an IPO, exemplify this trend. Similarly, EQT opted to divest its stake in Nord Anglia, a school business originally considered for public listing, to a consortium of its newer funds instead.
The dynamics of sales have also shifted, with firms offering buyers enhanced risk protections to secure transactions. As one anonymous private equity executive noted, “The toolbox is really being opened now.” This approach has become increasingly necessary as the pressure to find viable exit options grows. Structural changes in the market, including the rise of passive exchange-traded funds that typically do not purchase IPOs, further complicate the landscape.
The anticipated IPO resurgence linked to the election of President Donald Trump has not materialized as expected. The abrupt policy changes and uncertainty surrounding his administration have contributed to a broader closure of capital markets for prospective issuers. Instances of this trend include the postponement of IPOs for various companies, such as the software group Genesys, backed by Permira and Hellman & Friedman, alongside Bain Capital and Cinven, who delayed their listing of German pharmaceuticals company Stada.
A leading figure in private equity noted the disheartening reality that the perception of a robust IPO market stands in stark contrast to its current state. “The only thing that’s worse,” they remarked, “is the perception of how strong it was supposed to be compared to how it’s turned out.” The increasing challenges presented by structural market changes have heavily influenced this dismal outlook.
Daniel Lopez-Cruz, head of private equity at Investcorp, characterized the IPO arena as effectively closed for private equity firms, reinforcing the urgent need for alternative exit strategies. Meanwhile, the secondary market has gained traction, with buyout firms utilizing continuation funds to liquidate assets. The popularity of these continuation vehicles has surged recently, with private capital firms selling $75 billion worth of assets on the secondary market last year—a 44 percent increase from the prior year—largely due to the appeal of continuation funds among investors.
Despite the prevailing pessimism, some executives express optimism for a future resurgence in IPO activity. “Things can change very, very fast,” stated the head of a prominent European buyout firm, referencing ongoing preparations for possible IPOs within the next nine to twelve months. This determination to remain agile and responsive signals a glimmer of hope within an otherwise challenging investment climate.
Looking ahead, the health of the IPO market remains intricately linked to multiple economic factors, including interest rates, investor sentiment, and broader market conditions. The current state of the private equity landscape serves as a reminder of the cyclical nature of financial markets, urging firms to adapt rapidly in response to evolving challenges and opportunities. As the industry continues to navigate these turbulent waters, the strategies employed by private equity firms today will significantly influence their trajectories in an increasingly competitive financial landscape.