In what some have deemed the first big initial public offering (IPO) of the new year, private equity firm TPG (NASDAQ:TPG) made its trading debut today. The TPG stock IPO has made waves as hordes of investors clamor over the “next-generation” private equity giant.
What’s going on with this latest headline-grabbing IPO?
TPG’s big news lately is its restructured performance compensation model. It’s offering shareholders only 20% of future performance-based profits, a 30% decrease from previous prospectuses. Instead, the firm is offering shareholders a greater percentage of its management fees, which is a more stable earnings metric.
This is a departure from its historical structure, which has been largely dominated by a strong reliance on performance fees, which were as high as 80% of its income. However, the shift away from performance fees has become increasingly popular in the private equity world. Saul Goodman, head of alternative asset management banking at Evercore (NYSE:EVR), explained the change to the Financial Times. He said, “It is the new standard. Almost every banker in the space that’s advising private equity firms on IPOs currently is advising to not contribute a large percentage of performance fees into the public company.”
TPG is frequently compared to private equity rivals Blackstone (NYSE:BX) and KKR (NYSE:KKR), which have seen strong gains during the pandemic. However, TPG is valued considerably lighter than the aforementioned competition.
7 Things to Know About the TPG Stock IPO
- TPG will trade under the TPG ticker on the Nasdaq exchange.
- The company plans to offer 28.3 million shares, priced at $29.50, for a roughly $9 billion valuation.
- TPG should raise nearly $877 million from the IPO.
- The company plans to use the funds in a variety of ways. This includes buying out minority stakes in the company, which accounts for roughly 40% of the IPO proceeds. The rest of the funds will reportedly go toward funding expansions into previously untapped industries and markets.
- TPG has raised $505 million in profits over the past year under the new fee structure. These funds are open for distribution to shareholders. Conversely, had it not adjusted its fee percentages, the number would be $1.2 billion.
- Compared to its competition, TPG is a bit less diversified. About 80% of its assets are in private equity, compared to Blackstone and KKR, which have larger relative holdings in credit and real estate.
- The Texas-based firm was founded in 1992 and was previously known as the Texas Pacific Group.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.