The risky business of private equity floats

While private equity takeover offers were a major issue for company boards in recent years, it is private equity exits, through IPOs which are of more relevance of share market investors. In January 2006, Crikey questioned the notion of buying private equity floats, suggesting to “never invest in a company being floated by a private equity firm, because only one person will make any money, and it probably won’t be you.”

Buying shares in a private equity float is similar to purchasing property “off-the-plan” from a professional developer¬† — that is, the vendor makes their livelihood from selling the asset you are buying. Usually, it is a pretty decent livelihood. Therefore, in the ordinary course of things, the asset you are buying is going to be fully priced or very close to it. Occasionally, private equity floats will prove to be bargains (most notably, JB Hi Fi), but that is usually when the vendor has underestimated the sector, rather than where the business sits in its growth cycle.

This is evidenced by the returns achieved on private equity floats in the past six years:


Market Capitalisation at Float (approx)

Current Market Capitalisation

Percentage return since float

Pacific Brands

$1250 million

$85 million

Down 93 percent


$442 million

$13 million

Down 97 percent

JB Hi Fi

$184 million*

$1119 million

Up 508 percent


$173 million

$485 million

Up 180 percent

Vision Group

$142 million

$32 million

Down 77 percent


$245 million

$165 million

Down 33 percent

Just Group

$428 million

$638 million

Up 49 percent^


$1135 million

$208 million

Down 82 percent

Boart Longyear

$2777 million

$101 million

Down 96 percent

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