Vista Equity Partners has long been one of the most notable software investors in private equity. But for the first 18 years of its existence, the firm never took one of its portfolio companies public.

That's changed in the past 15 months, when three different Vista portfolio companies have conducted IPOs. It's just one significant example of an ongoing trend: Private equity firms, which have traditionally preached the benefits of being private, are displaying a new fondness for taking companies public.

Despite a pandemic, PE firms have logged $74.5 billion in exit value so far this year across 22 IPOs of portfolio companies they acquired via buyout, the highest annual value in at least a decade, according to PitchBook data. The number of IPOs also marks a significant uptick from 2019, when there were just 15 IPOs from companies that were acquired via buyout.

IPOs from PE-backed companies acquired by LBOs


The surge hasn't happened in a vacuum. It reflects a broader boom across the IPO market in 2020 that's also been fueled by a wave of SPACs and a number of high-profile listings from venture-backed unicorns, with Airbnb and DoorDash the most recent examples.

"I think it's a sign of public markets having a huge appetite for anything and everything rather than anything private equity-specific," said Wylie Fernyhough, a senior analyst at PitchBook focused on private equity. "If you look at VC-backed IPOs, SPACs, everything is going crazy this year, and public markets just keep buying."

Indeed, the S&P 500 has jumped more than 16% year-to-date, and the Nasdaq composite has gained some 42%, even with COVID-19 case counts continuing to rise. An influx in retail investor activity, continued growth of tech companies, hopes for another economic stimulus and recent news of vaccine rollouts have all contributed to keeping public markets frothy.

Another factor: Interest rates have remained at rock-bottom levels, making it a good time to cash in for many investors wary that capital gains tax rates may jump if Democrats win control of the Senate.

"I think what you're seeing is companies going public because the individuals involved with those companies selling into the IPO can get favorable tax treatment," said Nick Tsafos, a partner at EisnerAmper who works with private equity firms on deal structuring. "They're making sure they are trying to get it in so they can lock in to the lower capital gains rates."

Vista is one firm that has benefited from the ongoing uplift in tech stocks. Ping Identity, which became the firm's first portfolio company to go public in September 2019, specializes in authentication software. Jamf, which went public in a Vista-backed offering in July, sells enterprise management software for Apple products. And Datto, the subject of Vista's third recent IPO, provides cybersecurity and data backup services.

"Investors are buying into technology because we're in this remote work-from-home environment where we've been limited with how much we can travel and go out," Tsafos said.

Some of the year's other biggest IPOs have also occurred in pharmaceuticals, food and cloud services, other industries that have all seen broader upticks in investor interest during the pandemic.

The year's largest debut came from Maravai Life Sciences, a GTCR portfolio company that raised roughly $1.6 billion at a valuation of more than $8 billion in a November IPO. Rackspace, a provider of cloud services owned by Apollo Global Management, raised more than $700 million when it listed in August. Apollo and Cerberus Capital Management are also backers of Albertsons, which raised $800 million in a long-awaited IPO in June.

These companies haven't had the same sorts of stock spikes that have been common for many of the major venture-backed companies to go public this year. Shares in Rackspace closed Thursday down some 19% from their IPO price, while Albertsons shares have remained flat.

More so than any other year in recent memory, private equity firms looking to take portfolio companies public have had options in 2020. The proliferation of SPACs in recent months means that reverse mergers are a more realistic option than ever before. But for now, at least, the traditional IPO process is still king.
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"SPACs have many differentiating factors that make them preferable to IPOs in some cases, but private equity firms will likely primarily use IPOs to publicly list portfolio companies for a while longer," Fernyhough said. "The IPO is a known entity. However, as some firms like Blackstone and Hellman & Friedman list portfolio companies through reverse mergers with SPACs and make the industry feel more at ease about these entities, the calculus may change."

Featured image via lo lol/Unsplash

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