Discounted Share Sales in Portfolio Companies on the Rise

In a sign that stock market valuations are not expected to regain their previous highs anytime soon, private equity firms are increasingly selling shares in portfolio companies at a discount to their initial public offering (IPO) prices, according to a report by The Financial Times.

As the report notes, these “follow-on offerings” are an important way for private equity companies to offer a return on investments. When the stock market declined last year, these offerings fell by more than 70%, the FT said.

Now, however, they’ve begun to rebound, even as valuations for recently listed companies have remained low. Private equity driven follow-ons in the US are up 180% this year, the FT said, even though nearly two-thirds of the deals were priced below the companies’ IPO.

According to the FT, the most glaring example of this trend happened in March, when Blackstone sold a 10% stake in dating app Bumble for a little more than $300 million, roughly half its IPO price.

As of last month, traditional IPOs had raised $2.3 billion in the U.S. for 2023, the worst start to a year since 2009. The situation was even more dire last year: listings hit a 20-year low as investors — worried about high interest rates and inflation — avoided high-growth companies.