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Steer Clear of the Private Equity IPO Train

Private equity firms are bringing several IPOs to market in the coming months, but Morningstar's Pat Dorsey says investors should not get too excited.

Steer Clear of the Private Equity IPO Train
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Pat Dorsey: Hi. I'm Pat Dorsey, director of equity research at Morningstar. The private equity IPO train has begun to heat up. Over the past few years, it's always been a question as to when all of the mega deals that occurred in 2005 to 2007 back when credit was basically free, when all these private equity deals would come back to market. Because, of course, when private equity firms take a company private, they need to take it public again later or sell it in order to realize some cash returns, which they can then distribute back to their general partners and other investors.

With Kinder Morgan, this week we're having one come out. We've also seen Neilsen recently, Freescale which was a spinoff from Motorola, a semiconductor company that got LBOed for about 15 billion in 2007. That's just filed to come back out. We have Toys "R" Us, HCA, and Hilton Hotels in the pipeline as well.

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Pat Dorsey does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.