Private equity-backed IPOs outperform the broader market: Study

A new study has found initial public offerings backed by private equity funds fare better and outperform comparable non PE-backed IPOs in both short-term and long-term goals.


The study, released today by global financial advisory firm Rothschild and the Australian Private Equity and Venture Capital Association Limited (AVCAL) examined ASX-listed IPOs with an initial offer size of $100 million or more since 2003.


As of February 2014, private equity-backed IPOs have posted an average return of 95% since listing, compared to a 2.2% decline for IPOs without private equity backing.


Private equity-backed IPOs that listed in 2013 have achieved an average return of 22.5% from listing until the end of February 2014, compared to an average 1.2% return for non PE-backed IPOs.


The study found that a $10,000 investment spread evenly across the sample of 21 private equity-backed companies that went to IPO since 2003 would be worth approximately $19,500 as at end of February 2014.


This is $9870 more than the same approach with non PE-backed IPOs.


AVCAL chief executive Yasser El-Ansary said in a statement that the analysis “puts to bed” the view that private equity backed companies underperform once listed.


“These results underscore the fact that private equity investment into businesses leads to a boost in the performance of those businesses, and at the same time helps to unlock growth and expansion opportunities right across the domestic and global marketplace,” El-Ansary says.


Head of Rothschild Equity Advisory in Australia, Stuart Dettman, said they looked at returns both on an absolute and market capitalisation weighted basis and that both showed that private equity-backed IPOs have performed better.


“Of particular note is the strong outperformance to date of those PE-backed IPOs that listed in 2013. Given the strong IPO pipeline we’ve seen in the past six months, this research has important implications for retail and institutional investors in how they view PE-backed IPO opportunities in the future.”


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