Deals

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

The Brexit vote has been a dilemma for private equity firms wanting to jettison their last holdings in recently listed companies. Selling shares before the June 23rd referendum would mean missing out on a better price if the "remainers" win and there's a relief rally in U.K. stocks. The danger of holding on is that markets tank on a shock "out" vote.

Apax has chosen not to be greedy, and to press the button now by selling its remaining stake in Auto Trader, the trade mag it floated last year. That looks wise, given that it might be best to be at the front of the queue regardless of which way the referendum goes. Other PE owners still have decisions to make on timing.

Anecdotal evidence points to a bulging pipeline of British IPOs and secondary share sales that Brexit has put on ice. That's not suprising to hear. So far this year there have been 28 IPOs in London, raising 2.3 billion pounds ($3.3 billion), down from 37, raising 5.4 billion pounds, at the same point in 2015, according to Bloomberg data. Secondary offerings are at 8.4 billion pounds, against 12 billion pounds at this point last year.

London Lagging
Equity Capital Market activity is suffering ahead of Brexit vote
Source: Bloomberg

There may be a double backlog of initial share sales and planned sell-downs of private-equity-held stakes still held over from the 2015 IPOs. The timing of the referendum is especially unhelpful here, coming just before the European summer when IPO investors usually aren't keen to pore over prospectuses, implying a mad rush of autumn deals in London.

By contrast, follow-on share sales can be done on the hoof -- they just need a steady market and a discount to the previous day's closing price. Getting the highest proceeds means being opportunistic: Auto Trader hit a five-month high yesterday. But it stands out amid a lull in activity since the last rash of sell-downs in April.

Top Gear
Apax has gradually and opportunistically exited its stake in Auto Trader
Source: Bloomberg

There's still a big potential pipeline of offerings. Apax is sitting on 22 percent of Sophos, the IT security firm, while backers of Shawbrook still have 45 percent of the specialist lender, and Advent has 24 percent of DFS Furniture -- all a year or more after going public. The October-November IPO vintage is especially well stocked: Advent and Bain still own 28 percent of Worldpay, Advent has 20 percent of Equiniti, while the consortium behind McCarthy & Stone (which includes Goldman Sachs and TPG) still holds 20 percent of the retirement homebuilder. Goldman Sachs-led investors are also sitting on 58 percent of general insurer Hastings.

If markets go south on Brexit, selling recently listed UK stocks might be tough. But even if they don’t, investors may feel they have pricing power given the supply. Apax will be glad to have fully exited Auto Trader. Other PE firms will want to make sure they're not squeezed in a post-vote crush.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net