Wall Street’s Latest Pitch Is a Contradiction: Private IPOs

Private IPOs don’t come with the splashy bell-ringing ceremony of a traditional debut or result in publicly traded stock. They do allow companies to avoid the potential embarrassment of a new listing falling flat.
Private IPOs don’t come with the splashy bell-ringing ceremony of a traditional debut or result in publicly traded stock. They do allow companies to avoid the potential embarrassment of a new listing falling flat.

Summary

Some bankers and investors think they have found a way to work around choppy public markets.

Private-equity firms are desperate to cash out of investments. But enthusiasm for initial public offerings is low after several stock-market debuts flopped.

Enter so-called private IPOs.

The concept is being bandied about on Wall Street as investors and bankers search for ways to keep the money flowing. The contradictory moniker refers to stock sales in which early backers privately sell to longer-term investors such as mutual funds or sovereign-wealth funds, sidestepping the traditional IPO process.

Private IPOs don’t come with the splashy bell-ringing ceremony of a traditional debut or result in publicly traded stock. They do allow companies to avoid the potential embarrassment of a new listing falling flat.

Some on Wall Street balk at the name, seeing it as window dressing for private placements, which are sales of shares from one private owner to another and have been used for years. Skeptics say bankers, never a group to sit still, are playing with semantics to drum up business.

What’s more, some mutual-fund managers who have been approached to do private IPOs are wary. While they might get better prices and bigger allotments of shares in a private IPO, the liquidity—or lack of it—is a big drawback. If the managers buy stakes this way, it isn’t clear when they would be able to sell them.

Proponents of private IPOs say they lay the groundwork for a future stock-market debut. Most important, they allow private-equity owners to return capital to their investors who have been frustrated by a drop in deal activity. They can also give impatient employees the chance to sell stock.

Private IPOs, versions of which have been around for a while, are attractive right now as it has become harder for buyers and sellers to agree on prices, said David Ludwig, global head of equity capital markets at Goldman Sachs.

EQT, a Stockholm-based private-equity firm, helped popularize the term “private IPO" this past fall.

“We just made up the name because we were getting frustrated at the challenges of the public market," EQT Chief Executive Christian Sinding said. “Why don’t we just create a parallel structure—why does a company need to be public?"

EQT is considering a private IPO for one of the companies it owns and has been fielding calls from private-equity peers and bankers curious about the idea.

Hellman & Friedman in 2023 sold a minority stake in the $23 billion insurance brokerage Hub International to Leonard Green and other institutional investors, allowing the private-equity firm to partially cash out of its 2013 initial investment.

About a year ago, the payment processor Stripe sold around $6.5 billion of stock to large investors, including Temasek, on behalf of employees in a deal that was a variation of a private IPO, people close to the deal said. It valued Stripe at around $50 billion and bought the company time before a highly anticipated public offering.

The private-equity giants KKR and Bain Capital have each held talks with bankers and institutional investors about orchestrating private IPOs for some of their portfolio companies, people familiar with the matter said.

Wall Street had hoped IPOs would bounce back in 2024 after two terrible years that saw the majority of IPOs fall below their initial offering price.

One of the first major debuts, the KKR-backed healthcare company BrightSpring, dropped 15% on its first day of trading. That and other disappointments prompted many companies to put offerings on hold.

A few still plan to take their chances, including the social-media company Reddit, which first filed to go public in 2021 and is preparing to list its stock next month.

Write to Laura Cooper at laura.cooper@wsj.com and Corrie Driebusch at corrie.driebusch@wsj.com

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