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This paper evaluates the operating performance of buyout firms that exit through IPOs using a sample of 178 UK companies over the period 1980-1998. In particular, we consider the operating performance of buyout firms, measured by cash flow to total assets, asset turnover and cash flow to sales, from three years before IPO to five years following IPO. We find that operating performance steadily increases before IPO, peaking in the year immediately prior to flotation. Following IPO, operating performance steadily declines, and within five years, is not significantly different from the industry average. We go on to investigate the role of private equity (PE) providers in the performance of buyout IPOs. In contrast with evidence for US venture capital backed non-buyout IPOs, we find no significant difference in pre-IPO or post-IPO operating performance between PE-backed and non-PE-backed buyouts. However, we do find a difference in performance between buyouts backed by prestigious and non-prestigious PE firms. We also find that, consistent with other studies, younger, less experienced PE firms tend to bring their buyouts to IPO more quickly than more experienced PE firms, and that these firms experience lower post-IPO operating performance.

The Operating Performance of Buyout IPOs in the UK and the Influence of Private Equity Financing