Bridge to somewhere
A core skill in private equity is picking the right time to float a company. Bridgepoint’s partners, led by Executive Chairman William Jackson, have ticked that box with the planned initial public offering of their own firm, judging from the rich valuations of European rivals. Yet investor enthusiasm may be curbed by its slower growth, niche business model and need to diversify.
The UK-based private equity group on Tuesday said it was mulling a London IPO to raise 300 million pounds ($416 million) of new money and allow existing shareholders to sell down. Jackson would use the proceeds to expand beyond Bridgepoint’s traditional focus on buyouts with an enterprise value of roughly 1 billion euros. Last year, it bought EQT’s credit business. Acquisitions of infrastructure and real-estate investment managers are the likely next steps.
It’s a good time to float. Sweden’s EQT and Switzerland’s Partners Group are up 55% and 36% respectively this year, giving them 2022 price-earnings multiples of 42 and 33 times respectively. Investors are betting that they will be able to keep raising huge new funds from pension managers, insurers and sovereign investors.
Bridgepoint may make the same pitch. It grew its assets under management by 40% to more than 15 billion pounds from March 2020 to March 2021. New credit and private equity funds in the pipeline should take that figure to almost 26 billion pounds by 2022, according to a person familiar with the matter. Assume earnings grow by the same amount, and Bridgepoint’s bottom line could be 126 million pounds that year. Its equity would then be worth 4 billion pounds based on Partners Group’s multiple and over 5 billion pounds if benchmarked to the more richly valued EQT.
Yet it’s doubtful that investors would stretch that far. First, Bridgepoint’s historic growth rate is slower than EQT’s. Its assets under management have only grown by 40% since 2018, while the Swedish group’s funds have more than doubled. And the UK group may struggle to diversify its business quickly: its credit operations are still relatively young, and new areas such as real estate and infrastructure are highly competitive. For investors, giving Bridgepoint a valuation as racy as its peers would require a leap of faith.