Should you do an IPO or M&A deal now?

Posted on Friday, 5 March 2010. Filed under: Mergers |

There has been a lot of discussion recently about whether the IPO markets have re-opened.  IPOs have been announced, but also many retracted as well (note the withdrawal on 10 February of Blackstone’s Travelport and, one day later, Merlin offerings, followed a few days later by Permira’s and Apax’s withdrawal of New Look).

Now, it hasn’t been the strongest market for M&A deals either, especially for deals requiring large amounts of debt.  And few financial sponsors (such as Blackstone, Permira and Apax) have been able to participate in that market recently either.

It was thus no surprise that one of the leading participants in the M&A and Corporate Finance markets, Marsh, would sponsor a breakfast briefing in the heart of one of London’s financial districts to discuss this topic.  On 10 February, they assembled a group of experts from the London Stock Exchange, a major law firm, one of the private equity firms (in fact it was Permira), and myself (as the academic and ‘independent’ commentator), all hosted by the editor of Private Equity News.  Close to 100 people were in attendance.

It was a fascinating morning, with some interesting and sometimes heated discussion about whether the IPO market would be open again soon.  Interesting especially as the Travelport withdrawal didn’t occur until later that day, but the discussion anticipated such withdrawals without being specific about which ones.

We discussed as well which companies in today’s market should look to go public and which should look for a trade sale (acquisition). It was my suggestion that ‘if the firm needs to be sold in order to inject fresh capital to bolster a weakened balance sheet or because its cash-strapped owners need to offload the asset, then an IPO would not be the best option. It would be better for them to seek a buyer for that firm.”

The markets for public offerings will reopen again, but it is likely to require a significant change in confidence of both the buyers (potential shareholders) and sellers.  It looks as if acquisitions may continue for a while as the preferred route.

The full report of the session is available here.

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