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| Aftermarket | The period following the start of dealing in shares which have been newly issued on a stock market |
| Allocation | A method by which shares are divided between investors (in a flotation or secondary sale of shares) |
| Assets | Anything, physical or otherwise, including intellectual property, owned by a business |
| Auction | Public sale at which businesses are sold to the person making the highest bid |
| Benchmarking | The search to find and implement good practice through comparing the performance of an organisation with that of others. |
| Benchmark Valuation | A pre-sale valuation of a business prepared by or on behalf of the vendor |
| Bookbuilding | Indications from investors of the numbers of shares at different prices they would be willing to purchase |
| Business | An enterprise, private company, partnership, or individual carrying out commercial or industrial undertakings |
| Capital Market | A market, for example in a stock exchange, through which funds are obtained for investment. A potential bidder will often need to obtain financial backing in a capital market before making a major bid in a privatisation |
| Clawback | Terms of sale enabling the vendor to receive, in defined circumstances, a proportion of any subsequent profit made by the purchaser after sale - for example following the disposal of surplus land or other assets, or if the purchaser disposes of the business |
| Command Economy | An economy in which the most important financial and industrial interests are controlled by the state |
| Commercialisation | A process in which a state-owned business is put on a more market orientated footing while remaining wholly or partially in the public sector |
| Competitive Tension | A process by which the existence of two or more competitive bids can lead to the vendor benefiting from higher proceeds because of the competition between these bids |
| Concessions | The private sector is permitted to provide and charge the public for services which would normally be provided by the state, in return for a fee. The private sector will usually provide finance to build the necessary infrastructure, such as a bridge or road. |
| Contracting Out | A process, usually following competition, by which a government body pays a private provider to deliver a service, either to itself (e.g. the maintenance of public buildings) or to the public (e.g. collecting household waste). |
| Corporate Governance | The system by which businesses are run. This includes the director's duty to ensure that the business is properly and honestly managed |
| Deliverable | The service or product to be provided by the contractor. |
| Discount Factor | A means of calculating the present value of future costs and revenues> |
| Downsizing | A reduction in the staffing requirements of businesses which can follow after privatisation for a variety of reasons such as competitive pressures or the need to increase the profitability of the business by cutting costs |
| Due Diligence | A process by which the bidders verify if the facts and assumptions made at the time of their bids are accurate at the time the sale is completed |
| Equity | That part of a company’s capital belonging to its shareholders |
| Economic regulation | The exercise by the state, either directly or indirectly, of control and influence over suppliers of services to consumers. Regulation covers both privately and publicly owned suppliers and seeks to protect the interests of public consumers. |
| Flotation | The sale to individuals, financial institutions or private sector businesses of shares which can then be traded on a stock market |
| Financial model | Spreadsheets designed to show the financial outcome of a particular set of estimated costs, revenues and fixed and capital charges for delivering a service over time |
| Framework agreement | A contract over a particular period where the consultant or contractor is guaranteed regular pieces of work without the need for competition, provided they can demonstrate that they provide value for money. |
| Franchise | The private sector is permitted to provide and charge the public for services which would normally be provided by the state, in return for a fee. |
| Financial institutions which co-ordinate the marketing of an international share offer | |
| Gross domestic product | The total value of goods produced and services provided in a country in one year. |
| Indemnities | Conditions of sale by which a vendor agrees to pay costs incurred by the purchaser if certain events stipulated in those conditions occur |
| Intermediaries | Agents representing the interests and acting on behalf of individual investors in privatised businesses |
| Invitation to tender (ITT) | A formal communication to selected suppliers inviting them to submit bids for a contract |
| Joint venture | A jointly owned company set up by private and public sectors to complete a project which brings benefits to both parties |
| Liabilities | Costs which may be incurred after the sale of a business. They are either transferred to the purchaser or retained by the state. |
| Management and Employee Buy-out | Sale of the business to its management and/or employees, giving them control of the future direction of the business. |
| Market Economy | An economy where key elements in the financial and industrial sectors are owned by private corporations rather than by the state |
| Marketing | A process by which the vendor attracts bidder/investor interest in the sale of assets or the contract to be awarded. |
| Market Domination | Where a supplier has a major share of the market. |
| Market Stabilisation | A process by which, for a specified period following a flotation or secondary sale of shares, the government supports the issue price |
| Market Testing | Private companies are invited to tender for a contract to provide public services, in competition with the existing public sector provider or Discussions with industry or experts to see if there are organisations likely to bid enthusiastically for a contract before it is offered to the market. |
| Mass Privatisation | Arrangements differ between countries, so there is no single definition. Broadly speaking however the term refers to a programme of widespread privatisation, which may include the broad participation of the public as investors, and is often part of a rapid move away from a command economy towards a more market orientated economy |
| Mixed Economy | An economy in which ownership of some key elements in the financial and industrial sectors resides in the state and other key elements are in private hands |
| Monopoly | Where the market has only one supplier. |
| Objective | General statement of the service required. Comprises the deliverables, cost limits, risk transfer and benefits sought |
| Output specification | The customer's service requirements and minimum acceptable quality standards to which bids must conform. This information will be sent to all parties bidding for a contract. |
| Partnering | The situation where a public organisation and a private one work together to provide a service with some sharing of risk and reward, usually over a period of time |
| Performance Audit | An independent examination of how economically, efficiently and effectively the audited body has carried out its tasks |
| Preferred Bidder | The bidder who is selected by the vendor as being the party to whom it intends to sell the business, or award a contract, subject to the completion of negotiations and legal arrangements |
| Premium | The amount by which newly issued shares are traded on the stock market above the share issue price |
| Pre-qualification | The process by which bidders demonstrate that they have the technical skills and financial resources to carry out the services the customer requires. |
| Privately financed investment projects | A private company obtains the funds to design, construct / refurbish and operate/maintain a public asset such as a hospital. Once the asset is operating a regular fee is paid by the public sector for a set period (usually 20-35 years). At the end of this period, the asset reverts to public ownership. |
| Privatisation | Transfer by central or local government of a business and its assets from state to private ownership |
| Public Sector Comparator | An estimate of what the project would cost if traditional procurement methods were used. This is used to determine whether private finance offers better value for money than traditional procurement |
| Rate of return | The price paid to lenders and investors for the use of their money. |
| Reserve bidder | Second place short-listed bidder. Reserve bidders may be invited to keep their bid on the table in order to maintain competitive pressure on the preferred bidder. |
| Residual Management | The management of any remaining responsibilities or liabilities by the state following the sale of the business or the contracting out of a service. |
| Restructuring | A process in which the vendor prepares the business for sale |
| Retail Market | The market for individual investors in a flotation |
| Risk | Hazard, danger, chance of loss or injury, the degree of probability of loss; a person, thing or factor likely to cause loss or danger |
| Risk Allocation | The agreement between the parties to a public/private finance deal which defines which party is responsible for: a) minimising the chance that a particular adverse event should arise, b) for mitigating the impact of that event if it does arise, and c) or bearing the financial or other consequences of that event occurring. |
| Risk level | An assessment of the significance of the risks to be assumed by a party. It combines the impact of likelihood of a given risk arising with the impact of that risk. |
| Risk transfer | The passing of risk normally borne by the customer to the service provider |
| Sensitivity testing | Test of the impact on the value for money of bids if key assumptions (such as the likely demand for a service) change. |
| Success Fees | Fees charged by advisers on a privatisation or public/private partnership where a bonus is paid if the transaction being completed or a contract being signed |
| Supplier | A regulated business licensed to provide a specified service to consumers. |
| Taxpayers | The citizens of a country, whose taxes have been invested in state owned businesses |
| Trade Sale | Direct sale of a business in state ownership to another business. This includes joint ventures and part sales |
| Traditional procurement | A contract in which the customer pays the contractor for the provision of an asset as work in constructing / developing this asset progresses. Such assets are fully paid for on their completion. The maintenance of these assets are dealt with in separate contracts, while their operation remains the responsibility of the public sector |
| Tranche Sale | A part sale of a business in a flotation |
| Underwriters | Financial institutions which agree, in advance, in return for a fee, to buy unsold shares in a flotation |
| Utility | The supply of basic services such as water to consumers. |
| Vendor | The legal entity (representing the state) which owns the business being privatised |
| Voucher | Document which can be exchanged for shares in a privatised business or for shares in a fund which holds shares in a privatised business |
| Value for Money | The combination of cost (over the whole life of a project) and quality which best meets an organisation’s requirements. |
| Warranties | Provisions in a sale agreement through which the vendor guarantees certain matters to the purchaser about the business being sold |