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Private Equity Firms Dumping Discounted Stocks to Return Cash

Private equity firms have been selling their stakes in recently-listed European stocks, even at a discount, in order to recycle capital for their investors. Volatile markets have made it difficult to get good prices for these stocks, but the firms are hoping to make up for it with future investments.

November 23, 2022
4 minutes
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Private equity firms have been selling their stakes in recently-listed European stocks, even at a discount, in order to recycle capital for their investors. Volatile markets have made it difficult to get good prices for these stocks, but the firms are hoping to make up for it with future investments.

This week, Hellman & Friedman and other backers of Allfunds Group Plc sold about €288 million ($295 million) of stock in the mutual fund distributor at a 37% discount to last year’s initial public offering price. About a week earlier, Nordic Capital sold half its stake in Cint Group AB at 19% lower than the Swedish software company’s value at IPO.

An even more striking example came in October, when Chinese private equity firm Wise Road Capital sold shares in Alphawave IP Group Plc at a 76% discount to the semiconductor firm’s London IPO price.

Sales of large blocks of shares are typically profit-taking events for a company's early backers, making spates of transactions at such large discounts relatively rare. The recent round of sales is reflective of the pressures facing some private equity firms in a market with rising inflation and higher interest rates.

Buyout firms are struggling to sell their portfolio companies, as market volatility scares off potential buyers and keeps the IPO markets closed. However, they still need to find a way to return money to their investors (or limited partners) if they want to convince them to back new funds. This is leading them to sell some of their most liquid holdings in the stock market.

According to Anu Sharma, head of investment banking in Europe, the Middle East and Africa at William Blair & Co., private equity firms are focused on businesses with strong fundamentals, such as high margins and growing cash flows. This is because they need to deploy capital and distribute proceeds to their limited partners.

It's not just buyout firms that have been selling blocks of shares at discounts. European lender BNP Paribas SA also participated in the Allfunds placement, while smaller banking peer Intesa Sanpaolo SpA recently sold shares in Nexi SpA at a tighter 3% discount to the payment firm's listing price.

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Adan Harris
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