Market confidence lifts private equity returns

Surging investor confidence and reasonable share prices are letting private equity investors make some decent returns as a growing number of companies are put out to the public.

Private companies are considering IPOs again after a 22-month drought in New Zealand. Investor confidence is firming and share prices have climbed amid the global economic recovery, according to AMP Capital Investors' Guy Elliffe.

He told BusinessWire "private equity have probably come under pressure to sell in the interests of their investors" to take returns while they're on offer.

"The issues that have come to market have credible worth according to our analysis," said Elliffe, head of equities at AMP Capital in Wellington, which has $11 billion under management. "The market's looking more attractive" with asset prices rising and investor confidence brimming, he said.

Last week, outdoor supplies retailer Kathmandu Holdings was the first of several upcoming IPOs to begin trading on the NZX. Private investors Goldman Sachs JBWere and Quadrant Private Equity sold out their stake in the company that they bought from founder Jan Cameron in 2006 for $275 million.

The offer of Australian and New Zealand shares raised $422 million after being sold at the bottom of the indicative range.

"Private equity groups who purchased assets over the last five years haven't been able to sell them in the past 18 months," said Angus Gluskie, who oversees about US$300 million at White Funds Management in Sydney. "Now they're taking that opportunity."

South Island-based dairy company Synlait, biotechnology company BioVittoria, and property investor DNZ Property Group all plan to tap investors in a public listing.

Several more floats are rumoured to be coming to the market, such as Allan Hubbard's South Canterbury Finance and equipment hire company Hirepool. The markets have been quiet over the past 18 months as the global financial crisis sucked out investors' appetite for risk and sent companies ducking for cover.

Some firms, such as Nuplex Holdings and Fisher & Paykel Appliances were forced to sell shares at a discount to shore up their balance sheets as available credit lines dried up. Since then, investors have become more bullish and the NZX 50 index has surged 30 per cent from its low in early March.

The lift in sentiment has seen an increase in wider market activity, particularly in the troubled finance company sector.

Earlier this month, the Reserve Bank said it expects more failures in the industry and greater consolidation by the larger companies. Allied Finance agreed to buy Hanover Finance's financial assets for $400 million in stock, while minnow Cynotech Holdings is facing a takeover bid from chairman Allan Hawkins.

Going public has caught on again as the global recovery sets in. Monday kicked off the second busiest week this year for public offerings in the U.S., according to Bloomberg.

Five companies, including Rio Tinto Group's Cloud Peak Energy. and the first Silicon Valley start-up to go public in almost two years, Fortinet, are looking to raise as much as US$959 million, according to the report.

Kathmandu jumped on its debut last Friday to as much as $2.29, having been sold at IPO at $2.13. The shares fell 3.2 per cent to $2.14 today. Australian department store chain Myer is still trading below its IPO price from earlier this month.