Is private equity less of an 'alternative' when it goes public?

·3 min read

Private equity is an increasingly public business in Europe. This week, UK-based Bridgepoint Advisers became the latest PE investor in the region to go public when it completed an IPO on the London Stock Exchange, valuing it at £2.9 billion (about $4 billion). And it's not the only firm to have stock market ambitions of late.

LVMH-backed L Catterton is also reportedly eyeing a listing, either via an IPO or through a merger with a blank-check company (which would be a first for PE). Antin Infrastructure, a PE firm that invests in telecom, utilities and other sectors, is also said to be considering a public debut. And Forward Partners, a UK venture capital firm, has announced its intentions to list in London. This signals that private equity is becoming more of a mainstream asset class than its reputation as an "alternative" suggests.

That said, going public isn't a new thing for European private equity. London's 3i Group, Swiss secondaries specialist Partners Group, France's Tikehau Capital and Sweden's EQT are all listed. It's an even more established option in the US, where PE behemoths such KKR, Apollo Global Management, The Carlyle Group and Blackstone all trade publicly.

A PE firm going public may feel like a contradiction in terms. After all, the appeal of the asset class is that portfolio investments do not encounter the same kind of disclosure demands or shareholder pressure that public companies do. On the face of it, it seems counterintuitive that a PE firm would choose to meet those constraints.
 

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Yet it makes sense why a firm like Bridgepoint, whose investments include chains like Asian food brand Itsu and coffee-shop operator Pret A Manger, would decide to go public now. For starters, the market conditions are favorable; shares in the company soared by as much as 30% on its first day of trading. The IPO has furnished Bridgepoint with a war chest of £271 million in proceeds for future acquisitions and given it the ability to raise fresh equity in the future.

Bridgepoint's offering is also a sign that the European PE industry is maturing.

"What we are seeing in the private equity industry is an asset class that has graduated from the fringes of the capital markets and is closer to the mainstream," said Dominick Mondesir, a senior research analyst for EMEA private markets with PitchBook. "And with this, more buyout shops are transitioning from companies driven by founders to entities that are more institutional in nature, which is driving IPO activity."

But the benefits of going public also bring a trade-off by raising a firm's profile.

Already, Bridgepoint's high-level compensation packages have drawn scrutiny. The firm's IPO prospectus revealed, for example, that it had paid £1.75 million to Archie Norman, a former UK member of parliament and current chairman of retail chain Marks & Spencer, to join its board as a non-executive director in a £200,000-a-year role. It also revealed the pay of several others.

This news by itself isn't very controversial, but it is the type of information that Bridgepoint wouldn't previously have needed, nor likely wanted, to share. The firm's prospectus as a whole also gives fresh insights into how much money PE firms make—a potentially sensitive topic at a time when a recent series of PE buyouts is causing alarm in the UK.

When things are going well, being public can work to a GP's advantage. This isn't only because of the increased access to capital. The prestige of being listed—and the increased accountability that comes with higher, public-market standards—likely plays well with transparency-minded LPs looking to provide funds.

But while it is easy to expect a new wave of PE firms aiming to follow in the footsteps of Bridgepoint and its publicly traded peers, these firms are likely to remain exceptions for an asset class that has traditionally favored a high degree of confidentiality.

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