Realising value: private equity and the IPO exit route

Private equity houses have a number of routes available to exit from their investments, one of which is to float a portfolio company via an initial public offering on a stock market. How important is the IPO route to exit, what are the markets of choice for taking PE-backed companies public, and what is the share price performance of PE-backed IPOs in the after-market?

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Corporate actions and stock markets: is there a link?

Stock markets usually react fairly consistently to takeover announcements, and various trading strategies have been developed in an attempt to exploit share price movements around such announcements. But do markets respond in a predictable way to other corporate actions, and could timely information about these events benefit financial organisations and their customers?

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Enhancing delivery: the peculiarities of postal regulation

What’s so peculiar about postal regulation? After all, it is in theory based on the same model as that used for the regulation of the monopoly elements of the energy, rail, telecoms and water sectors. Sarah Chambers, Chief Executive of Postcomm, explains why the postal service can be regarded as a special case, and how the regulator is responding to this

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The economist in court: guilty of ex post rationalisation?

Economists are not always viewed favourably by judges. One accusation, made by the Competition Appeal Tribunal in Napp Pharmaceuticals (2002), is that economists rationalise business behaviour after the events have taken place. Is this fair on the profession? This transcript of a (fictitious) hearing with an economist presents the case for the defence

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Share prices and trading activity over the corporate action processing cycle

This research project for the Depository Trust and Clearing Corporation examines the ways in which accurate and timely corporate action information could benefit financial organisations and their customers by improving the effectiveness of their trading strategy and quality of advice offered to their clients. In particular, this assessment provides insights into the extent to which corporate actions affect share price returns, share price returns volatility and trading activity in secondary markets. In recent years, there has been considerable interest in the risks associated with corporate action processing. Several industry initiatives have acknowledged the potential impact of the limitation on the risks to which intermediaries and investors are exposed, principally in the operations of the back office. However, market participants are increasingly recognising the advantage that accurate and timely corporate action information can provide in the implementation of their trading strategies and provision of investment advice to their clients. Based on a sample of takeovers, spin-offs, stock splits, exchange offers, and rights issues for a large sample of US (and, in the case of rights issues, European and Asian) firms between 2003 and 2005, the report demonstrates that there is a significant link between corporate actions and share prices and trading activity. In general, the strongest effect is observed on the date on which the corporate action is announced, although record dates and ex dates are also often associated with significant increases in share price volatility and trading activity.

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At odds with reality? The economics of betting

Economic analysis of traditional high street bookmakers and Internet-based betting exchanges shows that it is the lower cost base of the latter that allows punters to be offered more favourable odds than those offered by high street bookmakers. However, for larger bets, which need to be executed immediately, bookmakers may offer better odds than exchanges, since large bets on the latter can change the market clearing price.

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The end of the line: deregulating telephony charges

Ofcom, the UK communications and media regulator, is proposing to remove price controls in all retail fixed telephony markets (access and calls). Ofcom’s view is that competitive pressure and consumer switching behaviour, together with wholesale regulation, should be sufficient to keep BT’s position of significant market power in check. Is this at last the beginning of BT’s freedom to price, or rather a change of focus for regulation?

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Fama–French: a challenge to the CAPM?

The CAPM has become the ‘industry standard’ for regulatory decisions on the cost of capital for utilities. Should regulators go beyond a single standard and opt for a multi-faceted approach, with several models in competition? This article looks at an alternative asset pricing technique, the Fama–French model, and its implications for regulatory decisions.

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Near real-time information release

Expanding on the 2005 cost–benefit analysis undertaken in relation to UNC Modification Proposal 006 (‘What are the costs and benefits of near real-time gas information?’), this report for the UK Offshore Operators Association addresses two specific issues regarding the 2006 Ofgem impact assessment—the approach and analysis undertaken by Ofgem as part of its impact assessment, and the implications of incremental information release for levels of risk and volatility in the gas market. Oxera’s analysis found that the assessment of the benefit of improved economic signals from the release of near real-time information may be flawed:

there is no evidence to indicate that Ofgem’s econometric pricing equation has been tested for robustness;
the assumption that near real-time information release will automatically reduce risk premia in the market, and by different magnitudes depending on the size of outage, is not justified by any evidence;
it is incorrect to reflect the reduction in risk premia solely through an adjustment to the impact of beach flows on prices—the impact of lower risk will depend on the overall supply–demand balance at the time and the availability of additional supplies from other sources.

In addition, the report proposes that it cannot be assumed that the release of additional private information is always beneficial for the market. There are circumstances when additional private information may have no incremental benefit (when private information is already conveyed quickly to the market through the actions of individual market participants), or where the information may be destabilising (leading to excessive volatility in the market).

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The London markets and private equity-backed IPOs

This study for the British Venture Capital Association and the London Stock Exchange investigated the attractiveness of the London public equity markets as a route for private-equity investors to exit from their investments. It examined the importance of IPOs as an exit route for PE investors relative to other forms of divestment, the after-market returns of PE-backed IPOs, and the liquidity of the London markets.

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