This year, several big initial public offerings appear ready to trundle down the pike, and business is bigger than it’s been in years.
Nielsen Holdings, Demand Media and (eventually) Facebook are set to rekindle the market. But, as The Wall Street Journal reports, returns for private equity firms will probably be hamstrung by a need to pay off debt.
Here is the problem: Most of these companies were purchased at the top of the market, before financial markets cracked in 2008. Many piled on huge amounts of leverage as part of their deals. As a result, a number of the coming deals likely will use proceeds of any IPO to pay down debt rather than reward private-equity investors.
Neilsen should offer a return that far outpaces that of the S&P 500, for example, but it may fall far short of typical expectations for investors in buyout firms, says The Journal.
A number of these firms are expected to try and raise new funds in the next year and these IPOs “will be key to developing investors’ appetite”.
Yet another reason to take a hard look at the financials for hotly anticipated offerings like Demand Media.
mtaylor [at] observer.com | @mbrookstaylor