Warburg eyes opportunity in failed IPOs

Warburg Pincus LLC, whose founder Lionel Pincus died last month, expects to find acquisition opportunities as rival private equity (PE) firms struggle to sell companies they own in initial public offerings (IPOs).

“A lot of private equity firms are planning IPOs for their portfolio companies,” said Dalip Pathak, the private equity firm’s top executive in Europe. ‘Not everything will go public,’ he added.

Firms were simultaneously preparing companies for possible sale as well as IPOs in the so-called dual-track processes, Pathak, 58, said in an interview at the firm’s London office. New York-based Warburg Pincus sold shares in Bridgepoint Education Inc, a provider of college classes, in April in the first US private equity-backed IPO of 2009.

Firms from Blackstone Group LP to CVC Capital Partners are seeking to take advantage of rising equity markets to list companies after a two-year deal drought prevented them from selling assets and raising cash. Still, investors are reluctant to buy shares of companies burdened by debt used to finance their leveraged buyouts, forcing sellers to reduce their prices.

RailAmerica Inc, the railroad operator backed by New York-based Fortress Investment Group LLC, cut its offering price to $15 a share from $16-$18 before it began trading on October 13. It followed Select Medical Holdings Corp, the Mechanicsburg, Pennsylvania-based hospital operator owned by Welsh Carson Anderson & Stowe and Thoma Cressey Bravo LLC, which slashed its IPO price by about 17 per cent to $10.

‘Banks are coming back’
Warburg Pincus has spent about 40 per cent of the $15-billion fund it raised in April 2008 and is preparing deals as credit for takeovers becomes increasingly available. “Banks are coming back,” Pathak said. “We can do club deals. It’s difficult, but we can find funding for $2-billion deals.” The firm was also weighing targets in Eastern Europe, Pathak said.

After only one buyout of more than $2 billion globally in the first half of the year, PE firms have announced four in the second half. TPG Inc and the CPP Investment Board agreed to buy IMS Health Inc, a provider of prescription data to drugmakers and analysts, for $5.1 billion on November 5 in the biggest leveraged buyout this year.

Private equity firms announced $15.7 billion of takeovers in the third quarter, up 52 per cent from the second quarter. In all, the pace of dealmaking is 66 per cent below the year-earlier period.

“We have certain strengths such as energy and health care which are advantageous in the current environment,” Pathak said. Warburg Pincus paid $115 million for a 15 per cent stake in Waterbury, Connecticut-based lender Webster Financial Corp in July.