PE investors begin to cash in on recovering equity markets |
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The number of exits by private equity houses in the form of IPOs is expected to return to near 2005 levels beginning next year, Ernst & Young said.
The IPO market will be strong in 2010 as private equity firms look at exiting their funds to take advantage of the improving equities market.
"Certainly in Europe the IPO will be a strong market in the first half of next year while in the Middle East it's probably going to be in the second half," Dave Read, Ernst & Young's Europe, ME, India and Africa Transactions Advisory Services leader told Emirates Business.
With burgeoning IPO pipeline because of few IPO exits in 2008 and 2009, Read said firms would have to begin selling to return cash to investors.
"There's quite a lot of processes going on in preparing these assets for sale and if the market holds up 2010 it will probably give us a good year of exits," he said.
"Equity market is driving it and this is an opportunity. Private equity makes money by buying and selling. You've got to start returning cash to the limited partners, the longer you hold on for an exit generally the lower the rate of return is," he added.
At least two leading regional firms have confirmed they will be going to the IPO market beginning this year, with more deals in the pipeline set to be announced next year. Citadel CapitalCitadel Capital
says it will be listing one of its portfolio company in the fourth quarter of this year or in the first quarter of next year."We plan to list this company first in Egypt and potentially do a dual listing in Dubai or London Stock Exchange," Hisham El Khazindar, Citadel CapitalCitadel Capital
's Managing Director said.Saudi's Amwal Al KhaleejAmwal Al Khaleej
is also looking at doing an IPO in the next 90 days and thereafter make another IPO next year. The company is also looking at a corporate M&A in 2010."We will be merging a private company to a private company and we will be seeing an increase in activity in that space," said Ammar Al Khudairy, Board Member and Chief Executive Officer of Amwal Al KhaleejAmwal Al Khaleej
. Both El Khazindar and Al Khudairy believe that markets have started to pick up. And although valuations of company remain relatively low, the quality of their investments would be able to give good returns."We go after growth stories," Al Khudairy said. "When we bought this company, it used to earn SR70 million (Dh68.56m) of profit this year it's going to have SR70m of profit so no matter how bad the market is, you are still making money when you mark it to market," he said.
"Across the board our platforms have performed well," CitadelCitadel
's El Khazindar said. "Why sell or exit at a time when valuations are still low and market conditions are not yet optimal? As long as these companies are continuing to create market and continue to grow, it is okay to go for an IPO.""Even at the level of valuations where we are - we'll be creating liquidity for LP's returning some cash," he said.
By Karen Remo-Listana
© Emirates Business 24/7 2009
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