Admiral Global: How Private Equity Can Affect Public Markets.

Admiral Global discuss how the decrease in supply of publicly traded company shares can cause an increase in price of remaining shares.

Tokyo (I-Newswire) September 21, 2012 - With the increase in the number of private equity deals, concerns are raised of the availability of publicly traded shares in companies. A decrease in supply subsequently causes the shares remaining to increase in price and hold more value because fewer are available.

“We could argue that an increase in the number of private equity deals we are witnessing at this time is actually beneficial for certain aspects of the stock market, in that as so many companies are going private, it becomes increasingly more difficult for public investors to access exposure to industries where private equity has been positively influential. Small to mid-size businesses in the energy and finance industries are prime examples of firms that actually become more valuable” explained Martin Hurst, the Senior Market Analyst at Admiral Global.

“Furthermore, private equity can boost the value of the company’s stock if it is thought a buyout is likely. We have seen stock prices in some firms rise quite considerably over the past for companies that are perceived as likely targets of private equity buyouts, and given the trends in the private equity industry recently, investors are now feeling more secure when they assume that a healthy sized premium will be paid over and above the market value of the company. This has driven up the stock value of many companies which were consistently mentioned, hyped even, as targets pending for a buyout” added Martin Hurst, the Senior Market Analyst at Admiral Global.

The beneficiary certain to gain through private equity's strength is the financial firm who structures the deals. Many financial companies have taken their market savvy and, combined with their extensive network of contacts within the industry, have ensured that they are somewhere bang in the middle of such events and as we have witnessed, this trend has been extremely lucrative over the past few fiscal terms. However, if interest rates continue to rise over the next couple of years, the sourcing of capital and willing participants to keep these deals going at the same rate could prove increasingly more difficult.