chinese money

Chinese IPO Opening Uninspiring for PE Funds

by

January 15, 2014

It had been hoped that the reopening of initial public offering (IPO) markets in China would start to drive activity across financial markets and allow private equity (PE) firms to start pursuing lucrative and profitable deals.

 

Asian markets have long been notorious for the difficulties associated with exiting investments, and a closure of the Chinese IPO market certainly didn’t help this, in addition to complicated processes in other countries like South Korea that may otherwise have offered profitable investment opportunities.

 

The UK Financial Times has reported that PE professionals across Asia are uninspired by the move, however, and believe that much more needs to be done both by PE firms themselves, in terms of seeking out new ways to exit and sell, as well as by the relevant authorities in support of their aims.

 

Flag Squadron’s David Pierce told the newspaper, “The idea that the IPO window reopening is going to solve all of our problems is just not true.” A separate survey conducted by Ernst & Young and cited by the Financial Times confirmed the feeling that it will potentially be years before IPO’s in Asia are regarded as a worthwhile exit route.

 

Only 8% of the total PE exit value in Asia came from IPO’s in 2013. Although there are no comparable figures from around the world, it is worthwhile noting that over half of all IPO’s across Europe were from PE funds. One prominent PE professional went so far as to say that, because of the unsure nature of the Asian markets, strong performing public markets could make it even harder for PE funds to be success.

 

Eric Solberg told the newspaper, “A successful IPO market will make it harder for private equity firms to gain control [in new investments] and means we will likely have to pay more for deals . . . if the market heats up too fast, both entrepreneurs and retail investors will get unrealistic expectations again about value and our conversations will become very difficult.”

 

Given the ways in which Europe and the United States both seem committed to driving PE markets, it will be interesting to see how the Asian scene develops over the coming months given the obvious opportunities that exist in this region.

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