Private equity IPO offers big returns

Getting access to successful private equity houses has not been straightforward for your average investor. But Apax Partners, one of Europe's biggest private equity firms, is listing an investment vehicle on London's main market next month, and forecast shareholder returns look attractive.

Apax is using the float to list PCV, a vehicle set up in 2008 for certain partners and employees. At the end of March, investments in four Apax private equity funds, debt and equities were worth €611.1 million (£437 million).

Raising the required €250 million from the IPO on 15 June shouldn't be difficult. Investors have been offered shares at a 13% discount to net asset value (NAV), and Apax already has €135 million of commitments from cornerstone investors.

No wonder, PCV's portfolio has grown 40% from €437 million at the end of 2012, outperforming broader market indices by around 18% a year and delivering an annual internal rate of return (IRR) of about 30%. Apax staff will be locked in for six years, and pre-IPO shareholders one year, with a staggered release of 20% per year.

"The vehicle presents a unique opportunity for stock market investors to benefit from exposure to Apax's excellent investment track record, in addition to the attractive investment opportunities that Apax has identified in asset classes that are not accessible to a traditional buyout fund," explains Apax Global Alpha chairman Tim Breedon, who ran Legal & General until 2012 and is currently a non-exec at Barclays.

With a mix of capital appreciation from its investment portfolio - mainly technology & telecoms, services, healthcare and consumer companies - and regular dividends, Apax is targeting an annualised total shareholder return, across economic cycles, of 12%-15% after fees and expenses. That includes a dividend yield of 5% of NAV once fully invested.

"Private equity investments have historically outperformed the public markets across cycles," says Ralf Gruss, partner at Apax Partners. "We have been witnessing an attractive deal flow recently, and believe the fundraising will allow us to capture high alpha opportunities for Apax Global Alpha."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.