The strong debut of Vlasic pickles owner Pinnacle Foods is good news for its most recent private equity owner, Blackstone, and for other buyout companies seeking exits for their investments. Pinnacle shot up 11% in its stock market debut today, even after pricing at $20, the high end of its IPO range.
Private equity firms often pursue a dual track when figuring out how to bow out of a portfolio company, meaning they look at both a sale and an IPO to determine which will produce better results. Because of volatile and disappointing markets, private equity firms often opted for a sale, sometimes to other buyout companies, in what is known as secondary sales. But those kinds of transactions can be frowned upon by the limited partners of the private equity firms, since pension funds and other investors put money into multiple buyout firms, so they don’t make money if those companies are just trading their portfolios among each other.
Now that conditions are looking up for the market and the S&P 500 hit a record high today, private equity firms are looking more at IPOs as an investment exit. In one of the larger expected IPOs from a buyout company, Warburg Pincus filed paperwork with the SEC earlier this month indicating its intentions to take Bausch & Lomb public, though it would continue to own a majority stake in the eye care company. Warburg had also explored a sale of Bausch & Lomb in a dual track process but also left open the option of an IPO if it didn’t fetch a satisfactory offer.
Of course, the potential for a successful IPO depends on the company. Although Pinnacle Foods has a lot of debt and faces slow growth, its brands are seen as a steady investment since many of its products are staple grocery items. The company also offers a high dividend. For Bausch & Lomb, the company has grown significantly since Warburg Pincus bought it in 2007 for $3.7 billion and it could raise up to $10 billion in an IPO, though it hasn’t indicated the size of the offering yet.
Private equity firms have a host of companies they acquired during the buyout boom of 2007 and afterward that they will be looking to exit this year. The stock market rise and strong debuts of companies like Pinnacle Foods will mean private equity firms will look more at IPOs to cash out.
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