While there are several different financing instruments available to a firm, they can all be categorized either as debt or equity. Furthermore, this is a choice that both private and public firms have to make. Debt. The essence of debt is that you promise to make fixed payments in the future (interest payments and repaying principal). If you fail to make those payments, you lose control of your business. The other is equity. With equity, you do get whatever cash flows are left over after you have made debt payments. The equity can take different forms: For very small businesses: it can be owners investing their savings For slightly larger businesses: it can be venture capital For publicly traded firms: it is common stock The debt can also take different forms For private businesses: it is usually bank loans For publicly traded firms: it can take the form of bonds
But: “In the suburbs there are twice the number of new businesses as the rest of France but their chance of succeeding within three years is 32 per cent lower. They don’t have access to finance and there is a lack of networks – they don’t know the right people.” FT 25 January 2012
Presenter
Presentation Notes
Amazon.com share price performance since IPO
Raising funds from angels/Venture Capitalist
Stage I Stage II Stage III Stage IV
Provoke Equity Investors’ InterestFactors that can contribute:• Type of business• Track record of the top managers (e.g., converting private business into IPO)•Windows of opportunity…
Valuation and Return AssessmentBased on assessment of firm’s prospects- Venture Capital Method (Exit or terminal value) e.g., use PE multiple in the year of IPO-Discount terminal value at higher discount rate (e.g., 30%)
Structuring the dealNegotiate 2 factors:- Investor: Proportion of value to demand in return for funding and the Owner how much of the firm she is willing to give up in return for capital. Thus Ownership proportion = Capital provided over Estimated value- Private equity imposes constraints on new investments and fresh financing so that private equity are protected and have a say in how the firm is run.
Post deal Management and ExitPost deal:-Investor takes active role through advice and contactsExit:-Private equity invest in firms to earn high returns in short-term-These returns are realised through
Coal group IPO would multiply investor profits, FT 5 Dec. 2004�� Private equity investors led by Blackstone Group will this week nearly quadruple their money after less than six months if an $800m flotation of the fourth largest US coal producer goes ahead as planned. In what may prove one of the most lucrative investment deals of the year, the owners of Foundation Coal aim to cash in on a renaissance in this long-forgotten industry by taking the company public just weeks after completing its purchase. Coal prices around the world have shot up this year as fears about the long-term supply of natural gas and oil have prompted electricity producers to plan hundreds of new coal-fired power stations in the US and China. The re-election of President George W. Bush has also reassured many in the industry who feared tighter controls on emissions of greenhouse gases and other pollutants such as mercury. Shares in Peabody, the largest publicly-quoted coal miner in the US, have doubled in price since January and risen 23 per cent since November's election. But few investors have profited quite so dramatically as the three private equity groups that bought Foundation Coal from a German mining group for $975m on July 30. The buyers, including Blackstone, First Reserve and American Metals and Coal International, borrowed heavily against their new mining assets, reducing the estimated equity portion of the deal to less than $200m. Analysis of the prospectus for this week's proposed initial public offering shows they will receive $724m in cash and Foundation Coal shares if it floats at the mid-point of the expected pricing range - a near four-fold increase in their investment in just 19 weeks. While some of this return is due to the multiplying effect of leveraged transactions, the scale of the potential profit shows the transformation in investor appetite for coal since the buyers first began negotiating with RAG Coal, the previous owner, this year. Foundation Coal consists of 13 coal mines spread between Wyoming and the Appalachian Mountains in the eastern US. Last year, it sold 67.2m tons of coal for $994m. Like others in the industry, it is enjoying growing demand for easily-mined Western coal as higher-quality reserves in the East begin to run out. Meanwhile, the so-called "dash for gas" among power companies in the 1990s has caused a shortage of natural gas and made coal look more economical. The US Department of Energy estimates that 92 new coal-fired plants are proposed across the country, representing 59,000MW of potential electricity and $69bn of investment. The pricing of Foundation Coal's IPO, expected on Wednesday, will be the most important test yet. Coal prices and mining shares fell back last week in line with declining crude oil prices, and profitable returns from the industry have proved notoriously unsustainable in the past.
