Wednesday 7th May 2008
Private equity-backed IPOs beat market
Initial public offerings (IPOs) of private equity-backed companies outperform other IPOs by nine per cent in their first year of listing, according to research from Cass Business School in London.
The companies in the study typically invested more on research and development (R&D) than their non-private equity backed counterparts. They also spent twice as much on capital expenditure in relation to their total assets.
The study has been hailed by the British Venture Capital Association (BVCA) as proof that private equity is good for business. Simon Walker, the BVCA’s chief executive, says: ‘The figures on spending on R&D and capital investment underline the big contribution that private equity and venture capital make to creating both businesses and an economy that are more innovative.’
Private equity firms tend to retain significant stakes in companies post-IPO, the study shows. In venture capital-backed IPOs, the average holding before flotation is 33.2 per cent, reducing to 19.8 per cent afterwards, while for private equity-backed IPOs a mean pre-flotation stake of 59.2 per cent is cut to 28.5 per cent.
Nick Britton
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