Private equity houses view the initial public offering (IPO) as a viable exit strategy from their portfolio investments once again. This is hardly surprising given the relative resurgence of the equity markets in 2009 and the debt constraints that hinder all but cash-rich entities from making private acquisitions.
Although the use of IPOs as an exit is nothing new to private equity investors or their financial advisers, experience from previous transactions highlights a number of issues when assessing the suitability of, and then planning for, an IPO exit.
There will be tension between the private equity house's desire to realise maximum value from its investment and the market's expectation that the private equity house should retain a stake in the company to show its continuing commitment and to demonstrate that it sees further upside in the company's value. As a result, private equity houses will need to consider the size...