Private equity firms are dolling up companies for initial public offering as a way of easing the $1 trillion of buyout debt weighing down their portfolios.
Some of the biggest private equity firms are accessing the public markets this year, using the capital to deleverage their companies. Kohlberg Kravis Roberts & Co., Blackstone Group, Silver Lake Partners and Fortress Group Inc. all have taken or are taking portfolio companies public this year.
KKR and Silver Lake used the public markets in August to launch Avago Technologies Finance Pte. Ltd., a Singapore-based semiconductor business spun out of Hewlett-Packard Co. The duo used most of the $648 million in proceeds to pay down leveraged buyout debt.
KKR planned to do the same with the proceeds from Dollar General Corp., which went public in a $716.1 million offering last week.
“The IPOs that are coming out now are not killer deals. They are not taking lots of money off the table,” said Harris Smith, Los Angeles-based managing partner of private equity at Grant Thornton LLP. “They are refinancing debt because they have to.”
The plan is to use the IPO market, if it materializes, to reduce leverage because the public markets are more available than the credit markets are, Mr. Smith said.
“A lot has been written about IPOs but nobody is making a killing,” he said.
Blackstone plans to take eight companies public in the next 12 to 18 months “if equity markets remain stable,” Stephen A. Schwarzman, Blackstone chairman and CEO said in a Nov. 6 quarterly earnings conference call. Among the eight are Team Health Holdings Inc., which filed Oct. 6 to raise around $100 million, and Graham Packaging Co. Inc., which filed on Nov. 2 to raise $350 million. (In June 2008, Blackstone and Hicks Acquisition Co. announced they would take Graham public in a $3.2 billion deal, but that transaction failed earlier this year.)