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Private equity's 'golden' hangover

October 5, 2012: 1:58 PM ET

Where are the mega-IPOs?

FORTUNE -- It's been nearly five years since the end of private equity's "golden age," when buyout firms used cheap debt to raid the Fortune 500. And one lesson has become abundantly clear: It can be much easier to buy companies than it is to sell them.

Here's a quick breakdown of where things currently stand with the 25 largest leveraged buyouts completed between 2005 and 2008:

  • Seven have gone public: Caesars Entertainment, HCA, Freescale, Hertz, Kinder Morgan, TDC, NXP Semiconductor and Neilsen.
  • Two have been sold: Alltel (bought by Verizon) and General Atlantic's stake in Euronext.
  • One was exited via bankruptcy: Chrysler
  • Two have been partially sold, with PE firms retaining majority ownership of remaining assets: Alliance Boots and Equity Office Properties.
  • Two have filed for IPOs, but have not priced: Avaya (filed in June 2011) and Archstone (filed last month)

In other words, private equity firms are still holding onto the majority of these investments. This could become problematic if not soon rectified.

The reality is that most of these companies need to be existed via the public markets, because they are simply too big for anything else. Verizon's (VZ) $28.1 billion purchase of Alltel -- previously acquired by Goldman Sachs and TPG for $24.7 billion in late 2007 -- was an outlier. Perhaps we'll see a couple strip sales (SunGard?) or fire sales (HD Supply?), but those would be exceptions.

And, when private equity firms sell via IPOs, they often need to maintain large share stakes for a very long time (so as not to totally tank the price). This can go double for large club deals, where the expectation is that each participant will bleed out slowly over time. At some point, these funds could be required to ask limited partners for extensions, or feel pressure to sell at a less-than-opportune time.

What all of this points to is a bumper crop of large, PE-backed IPOs in 2013. And word from Wall Street bankers is that they're expecting it too (although, truth be told, they said the same thing heading into 2012).

Below is a list of the 14 mega-buyouts from 2005-2008 that still remain in private equity hands:

Source: Pitchbook Data

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Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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