PE to continue driving 2011 U.S. IPOs

By Clare Baldwin and Alina Selyukh

NEW YORK (Reuters) – Private equity-backed deals will continue to drive the U.S. market for initial public offerings during the rest of 2011, capital markets bankers told the Reuters Global Mergers and Acquisitions Summit on Tuesday.

Of the 26 IPOs in the United States in the first quarter, only 11 were backed by private equity firms, but they accounted for $10.9 billion of the $14.9 billion raised, according to Thomson Reuters data.

“We are at the beginning of a cycle where investors actually like leverage if there is a clear path to pay it down,” said Mohit Assomull, global head of equity syndicate at Morgan Stanley (MS.N: Quote, Profile, Research).

Investors historically have been leery of investing in private equity-backed IPOs as the companies coming public commonly have large amounts of debt inherited from their sponsors in a leveraged buyout.

But based on deals done in the first quarter, at least some of those fears have been allayed.

Hospital operator HCA Holdings Inc (HCA.N: Quote, Profile, Research) raised $4.4 billion, pipeline operator Kinder Morgan Inc (KMI.N: Quote, Profile, Research) raised $3.3 billion and consumer measurement company Nielsen Holdings (NLSN.N: Quote, Profile, Research) raised $1.9 billion.

“If it’s a stable company with stable cashflows, it can handle more leverage,” said John Chirico, co-head of capital markets origination in the Americas for Citi.

The amount of debt a company can handle is variable, but 5 times earnings before interest, taxes, depreciation and amortization is reasonable, Chirico said.

So far this year the big buyout-backed IPOs have been in the range of 4.5 to 5 times debt to EBITDA, Chirico said.

Private equity portfolio companies will remain a key part of the U.S. IPO issuance this year but will not dominate the market, said Frank Maturo, Bank of America Merrill Lynch (BAC.N: Quote, Profile, Research) co-head of equity capital markets

“The financial sponsor deals are going to continue, but I think they’re only going to make up about half of the IPO issuance,” he said.

Maturo said other sectors including technology, healthcare, specialty finance companies and mortgage REITs could pick up.

Several more companies taken private during the height of the buyout boom could come public this year.

Chipmaker Freescale and toy retailer Toys R Us (TOY.UL: Quote, Profile, Research) are on file for IPOs. Dunkin’ Brands, which owns doughnut and coffee chain Dunkin’ Donuts and ice cream shop Baskin-Robbins, could do a $500 million IPO later this year, sources have said.

“The market is open as long as greed doesn’t overtake the various constituencies,” Morgan Stanley’s Assomull said.

“The markets right now are very healthy,” he said.

(Editing by Steve Orlofsky)

PE to continue driving 2011 U.S. IPOs