BVA Conference: The Evolution of Private Equity and Venture Capital

Euronext and the Belgian Venture Capital & Private Equity Association (BVA) held a hybrid webinar to discuss the interactions between private and public markets and how private equity and venture capital funds can prepare their exits via an initial public offering (IPO). BVA chair Joëlle Starquit led the discussion with a panel including Euronext Belgium CEO Vincent Van Dessel, Alain Baetens, Commercial Director of Listing at Euronext France and the Head of Listing at Euronext Belgium, Benoît Van Den Hove. 

Hybrid future

Vincent Van Dessel began the event by discussing why an exchange like Euronext likes to work with companies backed by private equity on IPOs. He explained that those that have taken funding from private equity and venture capital are already organised with professional external shareholders, making the step up to a listing less daunting for the business. 

Referencing the hybrid nature of the webinar, Vincent drew comparisons with a hybrid approach to investing, talking about the opportunities for companies to gain liquidity both through private equity backing on the way to a listing. 

Benefits of an IPO

Benoît Van Den Hove and Alain Baetens discussed the advantages of using an IPO as part of the exit strategy for private capital investors. 

Significantly, an IPO brings the ability to raise additional capital to fund the future scaling of the organisation in a way that a trade sale does not. This also allows private equity investors to enjoy enhanced liquidity at this stage.  

Another benefit is the brand recognition that comes with an IPO. By holding roadshows and talking to the press about the business as it prepares for its listing, the organisation’s work is more visible and people understand better what makes it an investable opportunity. This also increases credibility within the industry. 

An IPO also allows the company to reward valued staff with share options, helping to keep them motivated and retain them. 

The increased liquidity and opportunities for value creation provided by the business’ enhanced visibility allow investors to exit at or after the IPO in a strong position. 

• At IPO, funds can exit part of their position to take advantage of the enhanced valuation
• After IPO, historical shareholders can often sell via block sales, usually at a premium or through trade sales to industry insiders. 

Factors affecting valuation

The valuation of the company for its IPO is a process of refining until you find an acceptable level for the market. At launch, there will be a wide range of suggestions, which you narrow down through the pilot and pre-marketing stages. The analysts’ assessments, along with research reports bring you closer to your valuation before the prospectus is approved and the placement stage begins. At this point, you increase the number of investors you speak to and understand the price at which they want to take an effective position. 

Key valuation factors include: 

• The quality of yourequity story
• The gross perspective
• The structure of the offering
• Seasonality, with certain times of year traditionally less popular for IPOs than others, with August and September usually very quiet.

There are also external factors that can affect your valuation, including macroeconomic indicators, volatility in the markets and IPO market dynamics. 

Dual-track processes for IPOs and mergers and acquisitions

For private equity investors who might usually consider mergers and acquisitions (M&A) to be their natural exit, IPOs can provide an effective alternative strategy. In fact, if handled correctly, a company can run both processes to help them keep their options open in order to find the best possible strategy. 

Benoît and Alain discussed that using a dual-track process has been a successful option for companies. This replaces the sequential approach when a business seeks out M&A before starting an IPO. However, in this scenario, if the M&A fails, the process loses momentum and the chances of success of the IPO can be reduced. 

The alternative is to begin running the IPO and producing the necessary documentation, starting the trade sale process later and using the IPO documentation to share with a few, selected strategic buyers. In this system, the company can gain a better understanding of whether the IPO or M&A are going to be more successful and can halt the other without affecting the momentum of the chosen option.