Private Equity

World - IPO activity continues despite market volatility 

Source: Euclid Infotech, 21 June 2010

Recent volatility in the global equity market has put pressure on IPOs, forcing many deals to price below their ranges, sell fewer shares, or postpone/withdraw their plans to go public altogether. Despite market turbulence, however, there have been successful deals, showing that the appetite for new equity is present as long as investors believe in the business and the price is right.

There have been 192 IPOs globally in the first six months of 2010, far exceeding the 121 and 177 deals that were priced in the full years of 2008 and 2009, respectively. Global IPO proceeds stand at US$78 billion raised to date, compared to US$85 billion and US$106 billion raised in the full years 2008 and 2009.

Japan - Venture capital investments fell 40% in FY2009

Source: Nikkei Report, 22 June 2010

Investments in business ventures are falling, with Japan's top 20 venture capitalists providing start-ups a total of Y63.7 billion (US$713 million) in fiscal 2009, a 40% slide from the year earlier and a 50% drop from fiscal 2007. Venture capital firms apparently have become more selective in investment choices at a time when far fewer companies are opting for initial public offerings to raise funds, and many young entrepreneurs are struggling to stay afloat.

In 2009, IPOs in Japan totalled a paltry 19, marking a precipitous fall to 10% of a recent peak of 188 in 2006. The IPO drought in Japan has sent venture capitalists searching for opportunities elsewhere in Asia. At the top 20 venture capital firms, overseas investments accounted for 40% in fiscal 2009, compared with 30% in fiscal 2007.

China - PE funds face exit pressure in the next three years

Source: Industry Updates, 25 June 2010

China's private equity (PE) firms will face great pressure while seeking to sell their investment portfolios in the next three years. Around 2006, these PE funds invested into a batch of domestic projects. Now many of them may want to exit their investments after three years of operation. A PE firm usually operates a portfolio for three to five years, and then exits for a high return.

PE firms prefer exiting portfolios through an initial public offering (IPO) on the stock market. Other exit routes include selling out stocks to another investor. However, there are not many IPO opportunities as a company cannot easily get listed on the mainland stock bourses. The prices are fluctuating on the mainland stock market, and some even break the IPO prices on the secondary market on the issue day, which means the PE funds would not make as high returns as they expect.

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