Monday, February 12, 2007

IPOs following going private transactions

First some background: As private equity has grown in importance, there have been many more deals where publicly traded firms are bought out and taken private (so their shares no longer trade publicly). Then after a while, the the firms are often resold to the public. The following NY Times article deals with whether or not investors should be buying when this "smart money" is selling.

Should You Buy When Private Equity Sells? - New York Times:
"Last year, almost half of the more than 150 initial public offerings in the
United States involved such sales by buyout firms, a higher share than ever
before, according to Jay Ritter, a finance professor at the University of
Florida who specializes in I.P.O. research.Generally, however, the returns were
nothing to brag about. On average, shares in such sales, known as buyout
I.P.O.’s, performed far worse last year than both the overall market and other
companies that made their public debuts, according to figures from Thomson
Financial."
But before you give up on these IPOs, consider the following

:"...Jerry Cao, a doctoral candidate at Boston College, and Josh Lerner, a Harvard
Business School professor, found that buyout offerings from 1980 to 2002
returned 43 percent, on average, over the subsequent three years, versus just 26
percent for the Standard & Poor’s 500-stock index over the same span — a
difference of 17 percentage points. Similarly, Professor Ritter at the
University of Florida found that buyout offerings entering the market from 1980
to 2003 outperformed the S.& P. by 18 points in their next three years."

Definitely worth reading!!

1 comment:

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