...Initial Public Offerings Barry England, Steven Nesbit, Clifton Hall, Miguel Villanueva, and John Warren FIN 370/Finance for Business October 27, 2014 Gabriel Renero Initial Public Offerings Private companies transform into public companies to expand and attract investors. To do this they begin selling common stock to institutional investors who then sell the stock to the general public through a securities exchange. According to Mayo, 2012, “If this sale is the first sale of common stock, it is referred to as an initial public offering (IPO).” In this essay, we will attempt to describe the initial public offering for the global firm, Facebook, Inc. We will describe the role of the investment banker and underwriter, the role of an originating house and a syndicate, explain the pricing of the issue, discuss some of the risks involved in the public offering and how the securities laws deal with them, and discuss any foreign exchange risks the company can face with ideas about how to mitigate them. The first thing Facebook needed to do to launch their IPO was to hire an investment banker and an underwriter. Facebook hired thirty-three investments banks who acted as brokers to bring together individuals with funds to invest in Facebook. The underwriters in those investment banks together with Facebook agreed on a certain amount to raise on the IPO. Their underwriters provided several services, but the main role is basically to take responsibility of selling...
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...Initial public offerings Initial public offerings Keith Broomfield Jr Trident University FIN501 Strategic Corporate Finance Professor: John Halstead Summer 2013 Keith Broomfield Jr Trident University FIN501 Strategic Corporate Finance Professor: John Halstead Summer 2013 Module 1 Case Module 1 Case 1) What type of IPO should AVG use—a traditional IPO or an online auction? Based on your analysis and findings, what would you recommend to the executives of AVG? Explain your reasoning in detail. As I understand the formula/process. Most IPO's are underwritten by an investment banking organization that specializes in providing venture capital to launch an organization toward a public offering. Once the valuation of the company whose public offering is being considered is established then shares are created. These shares represent a certain value or stock domination as based on the company's worth through their product, service or manufacturing capability as identified by the Investment Banking Firm. In other words what current market share does the pending IPO company have, their current net worth and the future of their product and the market they currently affect, oh yes and do they have a proprietary product or patent and what's their competition about. This is a rather simplistic formula and for the sake of time will work for now. Those initial shares are first offered to large institutional investors. These institutions are capable of providing large capital...
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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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...and preparation that goes into an initial public offering. Setting a price for the IPO is a critical step with several factors to consider. Most new securities have their price set by an underwriter. One thing an underwriter must consider is the consequences of setting the issue price of the new offering. If the price is too high, the investment bank that initially purchases the securities will have trouble selling them. If the price is too low, the issuing company will not realize the income that it otherwise could. Either of these two scenarios can have a detrimental effect on the investment bank, issuing company, or both. Market research is necessary to understanding how the forces of supply and demand will affect the original value of a stock. (Raice, 2012). Risk and Securities Laws Investing in a newly offered stock has inherent risks associated with the investment. An IPO may have little or no demand in the market. Researching demand for the IPO and considering its performance at present and future market conditions will help reduce marketplace risk. Financial risk is fundamental to investing. By analyzing a company's financial statements and other financial information, an investor can determine the likelihood of the offering producing a profit for investors. The market has proven to be volatile and hard to predict accurately. Market conditions have a lot to do with the risk of investment. An IPO by definition is the initial offering of the stock. As such the security...
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...Since the company is looking to transform from Private to Public they will need to go through the process of an Initial Public offering. An initial public offering is a company’s first time offer of common stock to the general public. As a privately held company expands it may need more funds than it can obtain through borrowing. A common first step in the case of IPO’s is to obtain private equity from venture capitalist. These investors seek to invest in firms that offer high potential growth over time. These venture capitalist typically look for investments Ranging from 2-5 years. Therefore firms will not only use IPOs to obtain new funding but also a way to offer venture capitalist to cash in on their investments. In most cases firms entering IPOs are not known well among investors because of this they must provide detailed information about their operations and financial conditions in a professional document known as a prospectus. This prospectus is typically written by an underwriter hired by the firm. Typically this underwriter is an investment banking firm who absorbs the risk of the initial cost of the IPO. The prospectus must also contain risks involved with the company. It is intended to provide potential investors with the information they need to decide while debating to invest in a company. Within 30 days of the developed prospectus the Securities Exchange Commission will assess the prospectus to determine if it has sufficient information relevant to investors...
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...Initial Public Offering Sysorex Global Holdings Corp, a provider of IT services and technologies, is based in Santa Clara California and went public in 2014 at an initial public offering (IPO) price of $6 on April 10, 2014 for 3,333,333 shares (Nasdaq). An initial public offering (IPO) is the first time a private company offers its stock to the general public (Titman). When a global firm, such as Sysorex Global Holdings, decides to go public in order to raise capital funds for projects, many concerns must be addressed. Understanding the role of the investment banker and underwriter, the role of an originating house and a syndicate and how to price the issue most be mastered. In addition, it is important for companies going public to understand the risk involved, what foreign exchange concerns the company’s likely to face and possible ways to mitigate them. Prior to deciding to go public, Sysorex worked with investment bankers in order to determine the best way to raise capital. An investment banker describes both the firm itself and individuals work for it and the investment banker provides three basic functions: underwriting, distributing and advising (Titman). Investment bankers work in financial institutions and are primarily in the business of raising capital for companies, governments and other entities (Investopedia). The role of the underwriter is to assume responsibility of distributing a securities issue to the public. ...
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...IPO When a company decides to go public it is viewed as no longer been owned by a set of private individuals, but instead, it is viewed as now being owned by those individuals as well as by members of the public (or shareholders). This ownership is acquired by shareholders through the purchase of shares in an Initial Public Offering (IPO) or even after an IPO. “An Initial Public Offering (IPO) may be defined 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.” The principal participants in the IPO process are the company’s management, board of directors, counsel, independent accountants, and pre-IPO stockholders; the managing underwriters, research analysts, and underwriters’ counsel; and, of course, the SEC just to name a few. A private company may decide to go public in order to raise additional capital to fund its business and or take advantage of an investment opportunity which will not only benefit the company but also its shareholders. There are many sound reasons for private companies wanting to go public. For instance, equity capital obtained from an IPO is considered a permanent form of capital since there is no interest to be paid on the equity, and it is not repayable like debt. Therefore, funds generated by a public offering are considered a relatively safe form of capital...
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...Initial Public Offerings Jay R. Ritter Cordell Professor of Finance University of Florida Gainesville FL 32611-7168 (352) 846-2837 jritter@dale.cba.ufl.edu http://bear.cba.ufl.edu/ritter Warren Gorham & Lamont Handbook of Modern Finance Edited by Dennis Logue and James Seward reprinted (with modifications) in Contemporary Finance Digest Vol. 2, No. 1 (Spring 1998), pp. 5-30 This is the modified version. Abstract In the 1990s, thousands of firms have gone public around the world. This article surveys the market for initial public offerings (IPOs). The process of going public is discussed, with particular emphasis on how contractual mechanisms deal with potential conflicts of interest. The valuation of IPOs, bookbuilding, price stabilization, and the costs of going public are also discussed. Three empirical patterns are documented and analyzed: shortrun underpricing, hot issue markets, and long-run underperformance. This article is reprinted, with modifications, from the chapter with the same title in the Warren Gorham & Lamont Handbook of Modern Finance, edited by Dennis Logue and James Seward. The chapter in turn draws heavily on "The Market's Problems with the Pricing of Initial Public Offerings," coauthored by Roger G. Ibbotson, Jody Sindelar, and Jay R. Ritter in the 1994 Journal of Applied Corporate Finance; "Going Public," coauthored by Kathleen Weiss Hanley and Jay R. Ritter, in The New Palgrave Dictionary of Money and Finance; and especially “Initial Public Offerings...
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...Initial Public Offerings Paper Michael Walls, James Denton, Katie Rink, Lisa Johnson FIN370 July 28, 2014 Deneisha Johnson Initial Public Offerings Paper Many giant corporations seek the opportunity to make their companies grow, such as merging or acquisitions from another company. There is one thing a company can do in order to grow their company that is to make an Initial Public Offering. Companies like Facebook, Apple, or Microsoft at one point in the beginning have stepped into the stock market by their IPO's. These steps are what it takes to raise capital and what roles help the company begin an IPO. An investment banker is a person who is employed by a financial institution and is in the business mainly for boosting capital for companies, government, individuals or other entities. An investment banker sometimes works in a department within the bank and is involved with the above mentioned activities. Investment bankers can also arrange assistance to their clients such as financial advice on acquisitions, mergers, particular transactions, or even reorganization financial advice (Investopedia, 2014). An underwriter is an entity that carry-outs the civil issuance and delivery of securities against a company or other issuing body. An underwriter closely assists the issuing body to decide the offering price of securities. The underwriter then buys the securities from the issuer and sells them to investors by way of the underwriters network (Investopedia, 2014)...
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...Initial Public Offering Paper: VISA Introduction An initial public offering takes place when a company issues common stock or shares to the public for the first time. There are several reasons for companies to go public, for example, small and young companies that seek capital to expand and large privately owned companies that want to become publicly traded. After a company lists its securities on a public exchange, the money collected from investors for the sale of the shares goes directly to the company. Once a company is listed, it is able to issue additional common shares via a secondary offering. Usually, these kinds of public offerings are made by companies wishing to refinance, or raise capital for growth. This ability to quickly raise large amounts of capital from the market is a key reason many companies seek to go public. Visa Inc. is a global payments technology company headquartered in San Francisco, California. It facilitates electronic funds transfers throughout the world. Visa does not issue cards, extend credit or set rates and fees for consumers; instead, Visa provides financial institutions with Visa-branded payment products that they then use to offer credit, debit, prepaid and cash-access programs to their customers. Visa has operations across Asia-Pacific, North America, Central and South America, Caribbean, Central and Eastern Europe, Africa and Middle East. Visa’s industry is Financial Services which includes a broad range of organizations that...
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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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...Initial Public Offerings Chris Kessler FIN/370 September 1, 2014 John Wetherington Initial Public Offering In today’s society businesses have a primary goal of profitability and growth, not only for the shareholder’s, but also the livelihood of all the employees. One such way which this is made possible is to ensure there is plenty of working capital to promote growth. There are two main things that may be done to gain this working capital essential to grow. The first is through increasing debt from the banking sector and the other is by issuing shares to general public. We will be discussing the process of issuing shares to the public which is defined as IPO (Initial Public Offering). This involves opening shares up for purchase by the public through the Stock Exchange Market. Allowing the purchaser of these share the opportunity to become a partial owner of the equity which this business creates. The main intent behind this is that the stockholder would share in the success or failure of the company. It is for this reason that firms must know when and if they should go public. The question then becomes why should they go public and share the profit? The explanation to this question is simple. A firm must make a conscience choice to offer shares publically for the better good of the business. Making these shares available comes at a low cost to the firm, but in an enormous amount. The second part to this answer becomes clear when we examine the financial...
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...University of Maryland, R. H. Smith Business School Case Report Facebook INC: The Initial Public Offering Group Members Ao Zhou 114214195 Zehua Huang 114352699 Emily Buczkowski 112344252 Rui Cao 114368911 Julian Gooch 112364922 University of Maryland, R. H. Smith Business School Summary Facebook is an emerging internet-based company which has 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. ...
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...American Finance Association The Long-Run Performance of Initial Public Offerings Author(s): Jay R. Ritter Source: The Journal of Finance, Vol. 46, No. 1 (Mar., 1991), pp. 3-27 Published by: Blackwell Publishing for the American Finance Association Stable URL: http://www.jstor.org/stable/2328687 . Accessed: 15/03/2011 14:34 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at . http://www.jstor.org/action/showPublisher?publisherCode=black. . Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Blackwell Publishing and American Finance Association...
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...ISSUE MANAGER REPUTATION, UNDERPRICING LONGAND LONG-RUN PERFORMANCE OF INITIAL PUBLIC OFFERINGS: EVIDENCE FROM THE SINGAPORE IPO MARKET VOON PEIJUN (Bachelor of Business Administration (Hons), NUS) A THESIS SUBMITTED FOR THE DEGREE OF MASTERS OF SCIENCE (BUSINESS) DEPART DEPARTMENT OF FINANCE AND ACCOUNTING NATIONAL UNIVERSITY OF SINGAPORE 2009 ACKNOWLEDGEMENT I would like to express my warmest gratitude to Professor Michael Shih for his patient guidance and encouragement all this while. A very big thank you, Sir. I would also like to take this opportunity to thank my family for their love and concern all these years. Thank you Dad, Mum and Brother. Without their support, I would not have come so far. Thank you! Voon Peijun 2009 Page i ABSTRACT The study explores the role of issue managers in the initial public offering (IPO) process. Empirical research shows that IPOs are associated with two significant market anomalies: short-run underpricing puzzle and long-run underperformance phenomenon. This paper examines the reputational influence of issue managers on the two anomalies. Employing the newly developed ‘twelve-month rolling’ reputation ranking approach, our study is the first to furnish a comprehensive ranking of all the issue managers with a substantial presence in Singapore. Based on a sample of 384 IPOs listed on the Singapore Exchange between January 1, 1997 and August 22, 2008, we find evidence of prevalent short-run underpricing and...
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