Bridgepoint IPO: UK buyout group shows shrewd grasp of cycles

Private equity is good at reconciling apparent contradictions. You can invest in the funds as privately as their name suggests. You can also invest publicly in streams of fees from managing those funds, mainly via the stocks of US-listed buyout groups. Now Bridgepoint Advisers is planning a rare London private equity listing. It plans to raise £300m of new money.

Presumably, the temptation was too strong to resist. Private equity is riding the wave of “lower for (foreseeably) longer” interest rates. Pension funds and other yield-hungry institutions are pumping money into alternative investments.

Pandemic casualties that are nursing low valuations make tempting targets for that money. Result: share prices of US PE firms such as Blackstone and KKR are hitting all-time highs.

Bridgepoint is at a sweet spot in its own evolution. A year after buying EQT Partners’ €3.9bn credit arm, it has €27.4bn fair value of assets under management.

Management fees attach to €18bn of that; a handful of planned new fundraisings is set to lift the figure by half as much again. These revenues, stripping out carried interest, fair value gains and the impact of acquisitions, came to £14.7m in the first quarter.

Scale that up to £60m for this year and add half as much again to account for higher AUM next year takes you to a top line total of £90m. Then factor in a discount to sector multiples that stretch up into the 30s two years out. The conclusion is that Bridgepoint could secure a pre-money valuation of £2bn-£2.5bn.

Listed PE firms like to tout their earnings streams as stable and predictable. It is not quite so neat as that. Historic share prices reflect the stresses of regulation, defaulting subprime mortgages and various boom-and-bust cycles. Shares in Fortress, which listed at $18.50 a share, fell below $1 before being acquired by SoftBank in 2017.

Cynics joke that private equity partnerships produce general returns for insiders and limited returns for outsiders. But Bridgepoint is at least proving to external investors that it is a good judge of cycles with its listing plan.

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