Are Public Offerings the Best Exit Strategy for PE Healthcare Investments?


March 10, 2014

Private Equity (PE) houses have a number of exit strategies available to them once an investment cycle ends. If they have simply invested in a minority equity stake in the business, then they usually have no worries in this regard, as the company that was invested in will be the party planning for the PE exit.


When a PE fund initially undertook a buyout, however, they would have given thought to how they would exit the investment at the time. What many don’t realise when PE buyouts are reported is that most of them happen with a view to developing the business and selling on, typically 5 – 7 years down the line.


Although these are seen as relatively long-term investments, in the business world 5 – 7 years is a generally short timespan in the life cycle of a company. The next few years will see many PE funds start to exit investments they made pre and post 2008’s financial crisis.


As the global economy is now generally seen to be recovering and somewhat healthy, it appears that initial public offerings (IPOs) are the route many are choosing to take. Healthcare companies owned by PE firms are the latest to explore this exit strategy.


The Australian newspaper reports this is certainly the case in its own country. The paper cites the strong performance of a number of existing healthcare listings in Sydney as reason to believe this will be the case. Consultancy firm Ernst & Young understand why the IPO route may seem appealing, but also voiced a word of caution.


Graeme Browning, who heads up a division of E&Y’s Oceania business, told the newspaper, “The IPO pathway is open again, but it’s not very wide open. There has been a bit of a mixed performance in the after-market and until we see a more consistent performance in IPOs, we’re not going to see an easy path for all companies to follow.”


With healthcare outperforming most of the other industries in Australia in terms of public listings, IPOs are likely to remain an attractive opportunity, although it may be the case that only the PE funds that act early will enjoy the best returns.

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