Sustainable Land Development Today - April 2008 - (Page 14) segment of the E&C market. The resulting differences in share price, as displayed in Exhibit 3, provide an indication of the effect acquisitions have on the equity value of an acquirer. FMI segmented the results into six different categories to illustrate the effect of transaction size. Small transactions had a relatively minor impact on the share prices of acquirers, while large transactions tended to result in share-price gains immedi- ately before and after a transaction closing date. One year after the close of a major transaction, the acquiring firm’s share prices tended to trail that of its respective peer groups. However, it is difficult to determine whether this phenomenon was a result of the acquisition, or if it was due to factors completely independent of this analysis. Using this same approach, FMI analyzed the effect of stock buybacks on the share prices of E&C companies. FMI Introducing Mud Mats A NEW revolutionary product to keep you out of the mud! EASY TO DEPLOY ALTERNATIVE TO ROCK ENTRANCES PROTECTING TURF SITE ACCESS gathered information on stock buybacks made by publicly traded E&C companies between June 30, 1997, and June 30, 2007. Only buybacks greater than $25 million were considered. The results of the analysis were not segmented by size, due to the limited number of data points available. Furthermore, residential homebuilders represented a highly disproportionate number of the buybacks studied, making the results of the analysis most applicable to this particular segment of the E&C industry. The study did not find a substantial effect on the share prices of E&C companies that bought back a sizeable portion of their shares. So, on a short-term basis, stock buybacks do not significantly influence the value of E&C companies. The lack of effect also suggests that management generally does not possess greater insight than the overall market as to when their shares are undervalued. Analysis did show a modest two percent difference one year after the buyback between the buyback companies and their peers. History undoubtedly provides some insight into factors that drive the value of E&C companies; however, the interaction between infinite numbers of variables limits our ability to predict the future through past events. While the quantitative nature of the factors discussed lends itself to analysis, another more qualitative set of factors could have an even greater impact on the value of E&C companies. Qualities such as leadership, vision, reputation, organizational depth and breadth, and the ability to attract and retain talent are undeniably critical value drivers as well. In highly competitive industries, such as E&C, these qualities may be even more important than many of the quantitative factors. In short, the future value of E&C companies will be driven by the measurable, the immeasurable, and the unknown. SLDT About the author: Curt Young is an associate with FMI Corporation’s Investment Banking Group. He may be reached at 303.398.7273 or via e-mail at cyoung@fminet.com. For more information about Mud Mats please email us at: MudMats@brockwhite.com www.brockwhite.com Circle 199 • or www.SLDTonline.com/webcard 14 April 2008 Sustainable Land Development Today http://www.brockwhite.com http://www.brockwhite.com http://www.SLDTonline.com/webcard
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