The Influence of a Private Equity Fund's Holding Period on the Performance of IPOs: Empirical Evidence from the UK

Abstract: This paper analyses the effect of a private equity fund's holding period on the after-market performance of initial public offerings (IPOs) in the United Kingdom. We use a hand-collected sample of 166 sponsor-backed IPOs, which occurred on the London Stock Exchange's Main Market and Alternative Investment Market in the period from 2005 to 2015, to analyse the one-year and three-year buy-and-hold excess returns in relation to the private equity fund's holding period. First, we find that private equity backed IPOs significantly outperform the market, at least for the one-year time horizon post IPO. However, our results do not evidence the existence of significant differences in after-market performance based on the holding period. Instead we find that size and market timing are the most influential factors driving performance of sponsor-backed IPOs. Thus, our results indicate that sponsors tend to list their portfolio companies in times of hot market conditions instead of holding on to their investments. We additionally find that rather than classifying by holding period, a differentiation by sponsor type produces significant results as Buyout Capital-backed IPOs outperform Venture Capital-backed IPOs and highlight the resulting implications for future research.