JP Morgan Europe sees a return of buyout IPOs

By Louise Heavens

LONDON (Reuters) - The number of companies floated on the stock market by private equity firms is set to rise after a lull this year, the head of JP Morgan's equity and debt capital markets outside the Americas said on Tuesday.

"The sponsor IPO (initial public offering) phase is going to return. There has been a hiatus," said JP Morgan's Viswas Raghavan at a Reuters investment banking summit in London.

"There was nothing sinister in the lull. We've seen such a volume of issuance that pretty much all of the deals that were going to get done have been done. New money has been invested; a lot those assets will return to the market," he added.

Private equity firms typically use slices of equity and heaps of debt to buy undervalued companies. Sponsors can then install new management, reorganize the business and improve performance over several years before taking companies public again.

Private equity firms try to sell or list assets at a hefty premium, typically for a return of around 25 percent.

Buyout firms have been behind some large IPOs, such as for car-hire firm Hertz (HTZ.N: Quote, Profile, Research, Stock Buzz), which was among the biggest stock flotations in the United States so far this year.

But many buyout-backed listings were postponed during May and June's market correction, which was triggered by fears over rising interest rates and lofty valuations.

Raghavan added that the wall of money looking for assets means that most companies are being stalked by multiple bidders, pushing valuations higher.

"Every asset that is out there is looked at by five different sources, all of whom are having to pay top whack for the asset," he said.

"So the days are gone where these guys can pick off or cherry-pick a juicy investment at knock-down prices and get phenomenal returns."

Raghavan also said the boom in merger and acquisition activity is set to continue and that he was optimistic over the prospect for mega-deals in emerging markets.