The social network of the UK PPP secondary equity market – returns and competition in an emerging market

Abstract

In recent years, the UK’s private finance initiative secondary equity market has increased in size and maturity as primary investors, principally contractors, liquidate their stakes. As an emerging unlisted market, research challenges include the availability of timely and comprehensive information about equity transactions, as well as established methods for their interpretation and comparison. Data on transactions between 1998 and 2012, collected in the European Services Strategy Unit PPP equity database, are used to map this market and analysed using network theory. Active sellers and buyers are identified providing insight on the levels of competition. Following Granovetter’s conceptualization of SNA, actors operating in the secondary equity market (buyers and sellers of SPV equity – contractors, equity funds, banks, institutional investors amongst others) are characterized in terms of out-degree centrality, increasing with the number of actors within a seller’s ego network. The ties created through equity sales are applied in the formation of the market network. The notion that out-degree centrality of sellers can improve overall financial returns is examined with data on initial equity investment and sale values. Isolating returns on equity based on capital appreciation for a sample of transactions reveals that annualized return on equity is seemingly not improved by higher out-degree centrality, when compared to average returns. A more general contribution is provided through the visualization of the network of equity transactions in this emerging market.

Keywords:

• Competition
• public–private partnerships
• social network analysis
• secondary equity market
• special purpose vehicles