Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

The deals industry is like an assembly line, so when one end isn't operating at full capacity, the other slows, too. That appears to partially explain the U.S. IPO market's shortcomings.

Tapering Off
IPO volume is being curtailed by both market volatility and the fact that fewer big companies are backed by financial sponsors. For those still seeking exits, selling to another firm has become the better option.
Source: Bloomberg

Private equity firms, historically a big supplier of initial public offerings, haven't been pulling their weight lately, as my Bloomberg News colleagues Alex Barinka and Kiel Porter pointed out here. While the S&P 500 index is in the green this year and closed at a new high on Aug. 15, financial sponsors have viewed the market as simply too volatile to exit their investments in this way (although markets have calmed considerably lately). 

But even if that changes, don't necessarily count on private equity firms contributing much more excitement to the IPO market down the road -- at least as far as big, splashy deals are concerned. The days of mega-buyouts are long gone, for many reasons, one of which is that buyout firms can't team up on massive debt-funded deals like they did prior to the financial crisis. (Not to mention, an incredible number of former big-name LBO targets drowned in the debt they were saddled with back when they were taken private.)

The Case of the Shrinking LBO
Private equity firms are targeting smaller publicly traded U.S. companies than they did a decade ago.
Source: Bloomberg

Private equity firms are certainly still busy, but as Gillian Tan and I explained here last year, they're doing smaller deals, often even buying units of larger companies. And in the end, maybe that's a better way to go. The big exception this year: Leon Black's Apollo Global Management. It's taking private grocery chain Fresh Market, Redbox owner Outerwall, timeshare operator Diamond Resorts, and for-profit college company Apollo Education. That's more than $6 billion in total. Plus, Apollo bought security firm ADT in a deal that works out to about $15 billion. 

Still, that's the only private equity buyout worth more than $10 billion this year. And any exit -- via IPO or otherwise -- is probably years away. 

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

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net