12 - surya__2020 final for distribution.pdf - Private...

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Term SheetsSurya TutoringPrivate Equity in Emerging Markets
Agenda1.Admin2.Case3.Break4.Overview of Course5.Evaluations
AdminProblem Set 2 –credit if you hand it in.Midterm Quiz and Class ParticipationReviewing and updating partial points awarded for Q4Final Exam formatCovers whole course, with more of a focus on second half themes. See past exams for types of questions I have used in the past. I may or may not follow the same format. There may be some questions I have not addressed in class this year.Exam will be open book, open note.
Example
PE in the newsVC/PE sponsored firms are facing challenging times.One mitigant – government support.One support – $350 bn government-backed forgivable loans to help cover payroll.But, government limits to firms with less than 500 employees. Headcouunt of portfolio companies combined, so long as one investor controls. Taken to mean absolute control, or provisions in protective provisions that give investors veto over certain decisions.Means buyout funds are ineligible (as clearly control).VC funds also ineligible unless they waive their veto rights. Tough choice.Expect changes with subsequent legislation.
IPO Follow up
Some stylized facts about IPOsInitial UnderpricingLonger term underperformance (particularly for small firms)Changing attractiveness of IPOsHot and cold marketsRise of private exchanges and private sales
8Source: Jay RitterAverage First Day Returns are High in the US -- Underpricing
9International Average Initial IPO Returns are also HighSource: Jay Ritter
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11The New Issues Puzzle05101520FirstSecondThirdFourthFifthAverage Return (%)IPOMatched StocksIPO Non-Excess ReturnsYear After OfferingNew stock issues under-perform in the long run(VCs appear to be smart enough to sell at their first chance)
When does IPO underperformance start?PeriodRelative returnMonths 1-6+ 0.1 %Months 7-12-4.4 %Year 2-9.2 %Year 3-7.3 %Year 4-6.6 %Year 5-2.4 %Data from US, 1970-1990;returns through Dec 31, 1992PeriodRelative returnMonths 1-6+ 1.1 %Months 7-12-5.6 %Year 2-8.6 %Year 3-4.8 %Year 4-0.2 %Year 5-2.5 %Data from US, 1970-2002;returns through Dec 31, 2003Don’t hold IPOs too long: Underperformance seems to begin after 6 monthsBe wary of IPOs of small companies (which more likely to be VC backed), as underperformance focused on small firms12
Underpricing and underperformance for VC and Buyout-Backed IPOs?

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