• Sponsors pivot to sell-downs with DPI a key priority over absolute returns
• M&A discussions ongoing around several IPO candidates, including TKE

The outbreak of war between the US and Iran could not have come at a worse time for private equity.

As this column has previously argued, 2026 is a vital year for several PE firms with large-cap European strategies, given the need to begin monetising investments made in 2020/2021 and return capital to their LP investors.

The conflict between the two sides has metamorphosed into a purgatorial standoff, with the US declaring an indefinite ceasefire, halting President Trump’s threats of catastrophic escalation.

But at the same time, the US is blockading Iran – which in turn is also stopping ships flowing through the Strait of Hormuz, choking the vital waterway from both sides, limiting global energy supplies and keeping prices high. Oil futures remain at around USD 100 a barrel and are likely stuck there until there is a deal between the two sides.

At the weekend, the latest attempts at negotiation were cancelled by the US and Iran. As things stand, the incentive seems to be to wait to see who will blink first.

This points to higher energy prices for longer, with fears that these costs will soon pass through to inflation numbers and corporate earnings, despite benchmark stock markets flirting with record highs.

Like the Strait, Europe’s IPO market is effectively blocked for now due to the limbo in the Middle East – and therefore several sponsors are instead examining the art of the possible, lest the US and Iran fail to master the art of the deal.

The most obvious monetisation route is to push on with sell-downs of already listed holdings where sponsors still have a residual stake.

A recent deal by Cinven is a great example of this trend.

While the PE firm has two large possible IPO candidates, there are timing issuers with both.

As reported, any listing of Mobile.DE is not going anywhere fast and a possible IPO of TK Elevators has direct exposure to the Middle East through its operations in Saudi Arabia.

But Cinven has still been active in ECM this month through a 6.15% stake sale in Polish e-tailer Allegro, on 8 April.

The transaction generated proceeds of around USD 445m for Cinven and, while it priced at a tight discount to the previous day’s close, it was the lowest sell-down price for the sponsor since Allegro’s 2020 IPO.

Allegro was listed on the Warsaw Stock Exchange on 29 September 2020 at PLN 43 per share. The three financial sponsors sold a 21.7% stake in the IPO to raise PLN 9.6bn (USD 2.45bn) at the time.

At the trade price of PLN 25.60 per share, Allegro’s market value was equivalent to PLN 27.1bn (USD 7.3bn).

While still much higher than the amount paid by the sponsor to acquire the business, it served as an example of PE prioritising the return of capital to LPs and distributed to paid-in capital ratios (DPI) over the maximisation of absolute returns.

More to come

ECM bankers note there are several other sponsors now lining up to do the same.

“Sponsors have barely done anything in capital markets this year to-date and there is now huge pent-up supply ready to come to market,” said one.

A second banker noted several private equity clients were kicking themselves at not taking deal windows earlier in the year, when markets were less volatile but rising prices meant they held back to maximise value.

These funds he said were now ready to launch into the next available window they can, even if it means a lower price than that they might have obtained earlier this year.

There are several large sponsor-owned assets flagged by Dealogic as likely sell-down candidates soon, including: Terranor Group, Murapol, Torm, Zabka Group, Enity Holdings, Exosens and Bureau Veritas.

Additionally, there are questions over what Permira, Cinven’s fellow sponsor owner of Allegro, might be planning to do with its stake once a lock-up expires in June.

So despite a lack of sponsor IPOs, private equity players are expected to be active in European equity capital markets through selling-down their already listed holdings to get quick cash in the door to improve those DPI ratios.

That can come at a cost. Allegro notwithstanding, pricing levels in April show sponsors are starting to have to make larger concessions to the buyside to get deals done.

Dealogic’s Price of Liquidity (PoL) ratio for Europe, which measures secondary blocks pricing by analysing the discount against the percentage stake sold, has widened in April to roughly 1.64x. This would theoretically mean a discount of roughly 8.2% on a 5% stake sale, showing ECM investors are demanding more be left on the table for them in order to provide liquidity, due to the conflict.

Source: Dealogic, European PoL ratio

The April ratio is closer to levels often seen in August, where few deals are priced and the ones that do have to pay a premium to investors given the paucity of demand around the European summer.

IPO pipe expected to shrink, M&A discussions attractive

While it’s all well and good for PE to pivot to sell-downs at times of heightened market uncertainty, the real question for many sponsors and their LPs is what they do with their unlisted assets purchased during the pandemic era at high valuation multiples.

It is particularly problematic at a time when investors in Europe were beginning to lose faith in the IPO market, anyway, given lack of performance in recent deals.

This track record of underwater listings, combined with higher market uncertainty, presents sponsors with the unattractive prospect of listing at a screamingly wide discount to peers, which is difficult when assets were bought at toppy valuations in the pandemic era.

Leading the listing pack is, of course, Cinven’s TK Elevator (TKE), which it owns with Advent – this holding encapsulates this dilemma perfectly.

TKE started the year as one of the most anticipated IPO candidates in Europe, with true scale and high margins providing an attractive play for European investors. It is also of a size which narrows the potential pool of private bidders.

But the business is highly levered – with peer valuations compressed and TKE’s growth outlook directly impacted by the war in the Middle East, a bid from strategic suitor Kone is likely to win over the sponsors, despite potential antitrust headaches.

The first banker noted that a heavy sponsor-backed IPO pipeline was waiting in the wings for workable execution windows, pointing to 80% of his visible pipeline for European IPOs being private equity-led.

This includes big names like TKE and Mobile.DE, as well as UK driving services business RAC, Blackstone backed Hotel Investment Partners (HIP), Dutch Telco Odido, Swiss airline catering business Gategroup, and Bain Capital-backed Swedish infrastructure business Eleda.

Alongside these exit candidates, Swedish sponsor EQT has several possible IPOs in the pipe, including the UK listings of CFC Underwriting and veterinary chain IVC Evidensia, both earmarked for stock market debuts, although this could now be pushed to 2027, as reported.

However, the first banker admitted there was a sense of urgency around all these names, adding that a difficult European IPO market would force some sponsors to consider M&A given the chance to sell 100% of the business in one go and not be held hostage to fortune.

The second banker was even more pessimistic.

“I have never known a sponsor turn down a good M&A bid to do an IPO, but I worry in some cases now even what might look like a comparatively unattractive M&A bid might look better than the IPO market at the moment.”

In a vital year to start raking in capital, private equity must take whatever route it can through troubled waters.