REFILE-DEALTALK-Chink of IPO light for private equity

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By Megan Davies and Phil Wahba

NEW YORK, July 1 (Reuters) - Private-equity firms are cautiously looking for ways to exit investments by bringing portfolio companies to market, after seeing a sliver of opportunity for new stock flotations.

Bankers and lawyers report a rise in the number of portfolio companies in their IPO pipelines and a increased level of talks with private-equity firms.

"There's a slow snowball picking up," said Richard Truesdell, co-head of the global Capital Markets Group at law firm Davis Polk & Wardwell in New York. "We are miles away from the frenetic activity of 2007 but we are also hopefully miles away from the complete absence of IPOs that we had."

A tentative rebound in shares has given rise to speculation that IPOs will return more forcefully. Since a multiyear low in March, the Dow Jones Industrial Average .DJI has risen about 30 percent.

But grave concerns remain about investor appetite, the amount of leverage on companies and whether private-equity firms will get adequate returns in the market to appease the investors in their funds.

Investors are also wary of the fragility of equity markets, meaning any significant spurt of listings is a way off. That's borne out by the small number of private equity-backed firms in registration.

Owners may also seek to float just a small portion of firms and do follow-on raisings if the market improves, bankers say.

"I expect we'll start to see filings starting shortly (from private equity-backed firms)," said Lisa Carnoy, global head of equity capital markets for Bank of America Merrill Lynch (BAC.N).

"I doubt more than a handful of these will come in 2009 but you will see a significant pipeline in 2010."

Private-equity firms buy companies with the view of exiting investments several years later, either through selling to a trade buyer or a rival or by taking the company public. Exiting allows them to make distributions back to the investors that put money in their funds.

But good opportunities have been sparse with the IPO market effectively shut since the credit crisis hit.

So far this year, the only U.S. private equity-backed IPO has been ABS Capital's language software firm Rosetta Stone Inc (RST.N) -- a far cry from the decade high in 2006, with 66 listings yielding $17.5 billion according to ThomsonReuters.

That's filtered through to lower distributions made to investors by buyout firms -- which shrank to $63 billion in 2008 on a global basis, according to London-based private equity research firm Preqin. That was far less than the $182 billion distributed the previous year.

In 2008, the industry also distributed far less than it called -- a sharp turnaround from the boomtime. Capital calls -- the requests private-equity firms make to their investors to send previously committed capital -- totaled $148 billion.