...What is an Initial Public Offering (IPO)? How does an IPO allow an organization to grow financially? An initial Public Offering (IPO) is the first sale of stock by a private company to the general public. It allows the company to raise money, and it also allows the comapny to gain future access to the public markets When is a merger or an acquisition, rather than an IPO, a more appropriate way to grow? When the purpose that you are looking for is synergy more than capital for further investments. Select a recent IPO and use the Internet to identify the following characteristics of the selected IPO: I chose GT Solar International a. Initial offering price: $16.50 b. Price 1 month after offering c. Current market price: $9.23 d. Number of shares outstanding at the time of the IPO 142,375 e. Number of shares outstanding 1 month after offering 142,390 f. Current number of shares What features of common stock indicate ownership in the company? What is the ways shareholder’s benefit from ownership? * Claim on Income Common stockholders are entitled to a share of the profits in the form of dividend or it can be retained and reinvested in the company. The amount of dividend payments is not based on a fixed percentage rate, it is recommended and decided by the board of directors. * Claim on Assets If a company goes bankrupt and liquidates all its assets, the common stockholders have the right to receive their share of sale proceeds...
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...1) In general, what attributes make a company a good candidate for an IPO? Explains what type of company makes a good candidate for an IPO in depth. Explains the Advantages and Disadvantages of an IPO. An initial public offering, often shortened to an IPO, is when a company turns from a private company into a public company. This is done by the first sale of stock to the public by the former private company. This process is usually completed by a smaller company that is trying to increase its capital, and get its name out there. Even though young companies are usually the ones going through the IPO process, larger private companies can also complete the steps in order to be traded publicly. To complete this process, the issuer of the company seeks help from an underwriting company. Together, they determine what the starting price should be, when to enter the market, and whether to issue common or preferred stock. In order for a company to feel good about going public, there are some attributes that they should have. One of these attributes is differentiation. In order for any company to successfully go through the IPO process, it needs to bring something to the table that is not already out there. The company should possess some kind of unique aspect that no other company in the industry demonstrates. In other words, the company should have its own niche. This niche will help a company obtain customers that want something different that is not being offered by...
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...IPO for Avaya Introduction The goal of Avaya is to choose the best Initial Public Offering (IPO) for entrepreneurs and their investors. The IPO or the initial public offering is a term used to describe the first sale of the shares to the public by any company (Investopedia 2011). The company is planning to grow by opening IPO profit its business and become a globally recognized telecommunication brand. The system to “go public” allows Avaya, to substantially, gain net capital and increase the value of the company allowing it to grow. Avaya typically uses modern business and untraditional business practices so which IPO would be better to use? The two approached in an IPO are the conservative traditional IPO and an alternate method using an online auction, otherwise known as the “Dutch Auction”. IPO Considerations There are two major considerations to be made when going forward with an IPO. First, it must be done effectively and second should it be done at all. Once the decision has been made to go forward a decision is made which IPO method to use must be made. Comparison between Traditional and Auction based IPO (with costs). Clinton (2011) gives a plausible explanation between Traditional IPO and an Auction-based IPO. “In a traditional IPO, a company hires an investment bank to underwrite the IPO. The company and the investment back research the reasonable market value for the company. Based on research and the amount of capital the company wants to build in the...
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...Individual assignment The social networking company Facebook, Inc. held its initial public offering (IPO) on May 18, 2012. The IPO was one of the biggest in technology, and the biggest in Internet history, with a peak market capitalization of over $104 billion. Facebook's founder and chief executive Mark Zuckerberg had for years been unwilling to take the company public and he resisted a number of buyout offers after Facebook's founding. The company did, however, accept private investments from companies--often technology firms. Question 1: What made Facebook go to public on May 18, 2012? Many reasons, what made Facebook going to public on May 18, 2012, but there are only 3 main reasons which are: * SEC Rule: The key reason Facebook is going public is because of an antiquated Securities and Exchange Commission rule from 1964 that says that any private company with more than 500 "shareholders of record" must adhere to the same financial disclosure requirements that public companies do. That means filing detailed quarterly and yearly financial reports, and dealing with all the scrutiny that comes with a powerful company opening its books. * Employees will breathe a sigh of relief: One big upside is that many employees can start cashing out, and the newfound wealth of a successful Facebook IPO would be widespread enough that it should be easy to spot. Given that, going public is important to help Facebook keep good people, although some newly rich always bolt (as happened...
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...FINS3625 Applied Corporate Finance Lecture 6 (Chapter 14) Jared Stanfield April 4, 2012 14.1 Equity Financing for Private Companies • Sources of Funding: – A private company can seek funding from several potenNal sources: • Angel Investors • Venture Capital Firms • InsNtuNonal Investors • Corporate Investors 14.1 Equity Financing for Private Companies • Angel Investors: – Individual investors who buy equity in small private firms – The first round of outside private equity financing is oSen obtained from angels 14.1 Equity Financing for Private Companies • Venture Capital Firms: – Specialize in raising money to invest in the private equity of young firms – In return, venture capitalists oSen demand a great deal of control of the company Figure 14.1 Most AcNve U.S. Venture Capital Firms in 2009 (by Number of Deals Completed Figure 14.2 Venture Capital Funding in the United...
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...Initial Public Offerings FIN/370 July 13, 2015 Professor Thomas Rietta Initial Public Offerings An Initial Public Offering is defined by investopedia.com as, “The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.” Initial Public Offerings can be considered very risky as numbers and value involved with trade are very unpredictable. In the following paper, we will discuss the roles of bankers, underwriters, originating house as well as the risks of all parties involved. “The investment banker is an expert in the issuance and marketing of securities. The investment banker might advise the firm to issue its bonds in a timely fashion to avoid the higher interest rates that are forthcoming” (Titman, Keown, & Martin, 2014). According to “Investopedia” (2015), “investment bankers may also arrange assistance to their clients such as mergers and acquisition advice, or advice on specific transactions, such as spin-off or reorganization.” “An underwriter is a company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body. An underwriter works closely with the issuing body to determine the offering price of the securities buys them from the issuer and sells them to investors via the underwriter’s distribution network” (Investopedia...
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...Reflective thinking LOC: understand stocks and bonds 4. A bank that helps firms to acquire external capital is called a a. | commercial bank | b. | savings bank | c. | investment bank | d. | credit union | ANS: C PTS: 1 DIF: E REF: 11.2 Investment Banking and the Public Sale of Securities NAT: Reflective thinking LOC: acquire knowledge of financial markets and interest rates 5. Which of the following is not considered an advantage of going public? a. | new capital for the company | b. | listed stock for use as compensation | c. | stock price emphasis | d. | personal wealth and liquidity | ANS: C PTS: 1 DIF: M REF: 11.3 The U.S. Market for IPOs NAT:...
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...Key Concepts * Initial Public Offering (IPO) - First offering of stock to the general public. * Underwriter - Firm that buys an issue of securities from a company and resells it to the public. * Spread - Difference between public offer price and price paid by underwriter. * Prospectus - Formal summary that provides information on an issue of securities. * Underpricing - Issuing securities at an offering price set below the true value of the security. Type of IPO offers * Seasoned Offering - Sale of securities by a firm that is already publicly traded. * General Cash Offer - Sale of securities open to all investors by an already public company. * Shelf Registration - A procedure that allows firms to file one registration statement for several issues of the same security. * Private Placement - Sale of securities to a limited number of investors without a public offering. Management’s first task was to select the underwriters. Underwriters act as financial midwives to a new issue. Usually they play a triple role: First they provide the company with procedural and financial advice, then they buy the issue, and finally they resell it to the public. 1.Company appoints managing underwriter (bookrunner) and comanager(s). Underwriting syndicate formed. 2. Arrangement with underwriters includes agreement on spread (typically 7% for medium-sized IPOs) and on greenshoe option (typically allowing the underwriters to increase the number of shares...
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...JetBlue Airways IPO Valuation Summary In July 1999, David Neeleman announced his plan to launch a new airline that would bring “ humanity back to air travel.” Despite the fact the airline industry had 87 new-airline failures in U.S. over the past 20 years. Neeleman’s plan convinced a group of investors and quickly raised $130 million from venture-capital community. This is the way JetBlue Airways established. With its strong capital base, JetBlue acquired a fleet of new Airbus A320 aircraft and focused on low-cost, point-to-point service to large metropolitan areas with high average fares or highly traveled markets that were underserved. This strategy brought JetBlue Airways an excellent position in the beginning phase. JetBlue Airways started to expand aggressively and remained profitable even after the terrorist attacks of September 2001 by insisting on its low-fare strategy. In April 2002, barely two years since established, JetBlue meet its initial public offering (IPO). The initial price range for JetBlue shares was $22 to $24, but facing sizable excess demand, the management increased the range as $25 to $26. After the whole process of IPO including SEC review and comments, roadshow, pricing, tombstone advertisements, JetBlue finally launched in NASDAQ at $27/share as initial pricing, closed at $45/share on the first day of trading. With the proper strategy in IPO process, JetBlue make a huge success on its IPO. Questions Why JetBlue Airways can still remain profitable...
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...discussions with the investment bank of Crowe & Mallard. The company has a working relationship with Robin Perry, the underwriter who assisted with the company’s previous bond offering. Crowe & Mallard have helped numerous small companies in the IPO process, so Larissa and Dan feel confident with this choice. Robin begins by telling Larissa and Dan about the process. Although Crowe & Mallard charged an underwriter fee of 4 percent on the bond offering, the underwriter fee is 7 percent on all initial stock offerings of the size of East Coast Yachts’ initial offering (Ross etal, 2013). Introduction Although Crowe & Mallard charged an underwriter fee of 4 percent on the bond offering, the underwriter fee is 7 percent on all initial stock offerings of the size of East Coast Yachts’ initial offering. Robin tells Larissa and Dan that the company can expect to pay about $1,800,000 in legal fees and expenses, $15,000 in SEC registration fees, and $20,000 in other filing fees. Additionally, to be listed on the NASDAQ, the company must pay $100,000. There are also transfer agent fees of $8,500 and engraving expenses of $525,000. The company should also expect to pay $75,000 for other expenses associated with the IPO. Finally, Robin tells Larissa and Dan that to file with the SEC, the company must provide three years’...
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...Initial Public Offerings In order to gain funds for their organization, companies use initial public offerings (IPOs) to introduce their first sale of stock to the market, which is available to investors. An IPO allows a company to tap a wide pool of investors to provide itself with capital for future growth, repayment of debt or working capital (Wikipedia.com). Avaya, a global leader in business communications and phone systems, is considering an IPO in the near future but is uncertain of which method of IPO to use. Since Avaya has been a publicly traded company in the past, and it’s recognized and established global brand has seen no hint of decline in its profits or popularity (thetelecomblog.com), it would be best for the company to use an auction based IPO. Based on current analysis and findings, it would be best that the executives of Avaya Corporation use the auction based type of IPO because it could bring the highest profit per share to the company. Since the company has been publicly traded before, investors may already have knowledge of the company’s potential and bid higher for the shares. In return, Avaya could make more than anticipated if they were to set the value of the shares. In the auction based IPOs the bids are open to a larger investor pool, which include investors that have been in the business for decades and those that are new to the investing process. This expansion in investors can raise the bids higher because of the added competition in the auction...
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...IPO pricing and allocation: a survey of the views of institutional investors * Tim Jenkinson Said Business School, Oxford University and CEPR Howard Jones Said Business School, Oxford University Abstract Despite the central importance of investors to all IPO theories, relatively little is known about their role in practice. In this paper we survey institutional investors about how they assess IPOs, what information they provide to the investment banking syndicate, and the factors they believe influence allocations. Although the theoretical IPO literature has tended to focus on information revelation, the survey raises doubts as to the extent of incremental information production and whether bookrunners are, in practice, able to infer investors’ valuations from their bids. We find that investor characteristics, in particular broking relationships with the bookrunner, are perceived to be the most important factors influencing allocations, which supports the view that IPO allocations are part of implicit quid pro quo deals with investment banks. JEL classification: G23, G24 Keywords : IPO, institutional investors, survey * Corresponding author: Tim Jenkinson, Saïd Business School, 1 Park End Street, Oxford OX1 1HP, UK. e: tim.jenkinson@sbs.ox.ac.uk; t: +44 1865 288916; f: +44 1865 288805. We are very grateful to the Investment Management Association, in particular Tina Johnson, Jane Lowe, and Gordon Midgely, and the Alternative Investment Management Association, in...
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...astonishing growth in the past decade. Its substantial user base, subsequently massive database and pioneer brand image provide Facebook with the profitability base of its business. The main goal in this case is to evaluate the opportunity of investing Facebook in its IPO. Here we use both DCF valuation and Multiples valuation method to measure if Facebook is fairly priced. It turns out that both DCF valuation and Multiples valuation indicate that Facebook’s stock price is overvalued, suggesting the manager not to buy Facebook at IPO. We could also justify this decision by putting release of non-tradable stock and price trend of other recent IPOs into consideration. University of Maryland, R. H. Smith Business School Overview of problem Facebook is a leading social networking company with rapidly revenue growth, whose profit mainly come from advertisements. It planned to go public on May, 2012. Our issue in this case is to decide whether it is a good opportunity for CXT to invest on Facebook in IPO. So we need to estimate the value of a Facebook share to see if it is overvalued or undervalued. Section 1 Case Briefing 1. How does Facebook make money? What are the value drivers of its business? What is its comparative advantage relative to other social networking companies? Facebook makes most of its money by offering advertisers the opportunity to segment and target its users based on their demographic information, expressed interests and social connections...
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...1. In general, what attributes make a company a good candidate for an IPO? While researching the internet for facts and information about what attributes make a company a good candidate for an IPO, I found an article on E-commerce that explained some facts and attributes. First, I found out some basics facts such as, a company doesn't have to have a particular level of sales and/or a consistent record of earning/cash flow to execute a successful IPO. It was interesting to find out that it isn't what your company "has" done, but more or "what" your company will do. If management's story is worth listening to, then maybe they can convince the market, that they know where they are headed, and they know how to get there. This can be done by hiring public firms to promote the new stock, and to keep investors informed of the vision that management envisions. However, I did find that a company should have one of two specific qualities in order to launch a successful public offering. First, if a company has been able to solidify its entry into the industry by differentiating its product/service, then it will be more likely to survive the negative changes happening within that industry, due to the fact that they are insulated because of their unique segment to which makes their product attractive. If a company can find a way to show its attractiveness to a more narrow segment, then it will less to lose in a time of violent change in the industry. The other quality is Industry...
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...Alibaba’s IPO set to become the largest US IPO ever. On Friday morning when the New York Stock Exchange opens, $68 dollars per share is what investors will have to fork out in order to get a piece of what is set to be the largest IPO for a US-listed company. The amount raised is expected to be $21.8 billion dollars and could even be more should underwriters decide to exercise their options to buy more shares from shareholders including founding chairman Jack Ma, Joseph Chai, and Yahoo. With the price set at $68, alibaba will be worth more than their US competitor Amazon with a market value of $167.6 billion dollars. The e-commerce company’s large gross merchandise volume has been a factor in deciding the potential of the IPO as Alibaba has a larger volume than ebay and Amazon combined. Wall street has been more than excited with the potential that this stock has. While I have to agree that the stock does sound promising, I think that investors should proceed with caution. When Facebook debuted their stock on Nasdaq in 2012, everyone highly anticipated the IPO. In the end, the stock just barely made even on the first day and performed poorly for months. With the price already so high before the stock hits the market, investors should learn from experience and take precaution. Why? While from the revenue reports the company has shown very good prospect, the company is facing stiff competition from their China competitors in the e-commerce front. Tencent, it’s toughest...
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