Going PublicGoing Public

Chapter 16Chapter 16

Going PublicGoing Public

What does it mean to “go public”?What does it mean to “go public”?

Initial Public OfferingInitial Public Offering

AdvantagesAdvantages

Obtaining New Equity CapitalObtaining New Equity Capital Enhanced Ability to BorrowEnhanced Ability to Borrow Enhanced Ability to Increase EquityEnhanced Ability to Increase Equity Liquidity & ValuationLiquidity & Valuation Prestige ad Personal WealthPrestige ad Personal Wealth

DisadvantagesDisadvantages

Potential Loss of ControlPotential Loss of Control Public ExposurePublic Exposure Money and TimeMoney and Time Sarbanes-OxleySarbanes-Oxley CostsCosts

Costs of Going PublicCosts of Going Public

Average cost= $500,000Average cost= $500,000 SEC ReportsSEC Reports Accounting feesAccounting fees Legal feesLegal fees UnderwriterUnderwriter

Underwriter’s discountUnderwriter’s discount SEC fees- .02%SEC fees- .02% NASD fees- .01%NASD fees- .01% Printing costsPrinting costs

Alternatives to Going PublicAlternatives to Going Public

Private Placement of SecuritiesPrivate Placement of Securities Restrictive covenantsRestrictive covenants Liquidation covenantsLiquidation covenants

Bank loansBank loans DrawbacksDrawbacks

Timing of Going PublicTiming of Going Public

Is Company Large Enough?Is Company Large Enough? What is Amount of Earnings and What is Amount of Earnings and

Strength of Financial Performance?Strength of Financial Performance? What are the Market Conditions?What are the Market Conditions? How Urgent is the Need for Money? How Urgent is the Need for Money? What are the Needs and Desires of What are the Needs and Desires of

Owners?Owners?

Underwriter SelectionUnderwriter Selection

Start the “Process”Start the “Process” Select Managing UnderwriterSelect Managing Underwriter

Will develop a syndicateWill develop a syndicate Mutual contact/referralsMutual contact/referrals What should you look for?What should you look for?

ReputationReputation ExperienceExperience CostCost Distribution CapacityDistribution Capacity Advisory ServicesAdvisory Services

Registration Statement & Registration Statement & CostCost

Next Step= Planning MeetingNext Step= Planning Meeting Length of time for registration processLength of time for registration process Common hold-upsCommon hold-ups

Registration StatementRegistration Statement ProspectusProspectus Registration statementRegistration statement Securities & Exchange ActSecurities & Exchange Act

Form S-1Form S-1

The ProspectusThe Prospectus

Cover PageCover Page PreliminaryPreliminary FinalFinal

Table of Contents and Executive SummaryTable of Contents and Executive Summary IntroductionIntroduction Risk FactorsRisk Factors Use of ProceedsUse of Proceeds Dividend PolicyDividend Policy

The ProspectusThe Prospectus

CapitalizationCapitalization DilutionDilution Financial DataFinancial Data BusinessBusiness Management & OwnersManagement & Owners Capital StockCapital Stock Underwriter InformationUnderwriter Information Actual Financial Statements Actual Financial Statements

ProdcedureProdcedure

Red HerringRed Herring Comment LetterComment Letter Pricing AmendmentPricing Amendment

Other IssuesOther Issues

Legal IssuesLegal Issues Quiet periodQuiet period

LengthLength Why?Why?

Blue-sky QualificationsBlue-sky Qualifications State lawsState laws EffectsEffects

After Going PublicAfter Going Public

Aftermarket SupportAftermarket Support Relationship with Financial Relationship with Financial

CommunityCommunity Reporting RequirementsReporting Requirements

10-Q10-Q 8-K8-K Sarbanes-OxleySarbanes-Oxley Proxy SolicitationsProxy Solicitations

MythsMyths

In this market, high-tech is the name In this market, high-tech is the name of the gameof the game

If you’re doing OK, don’t worry about If you’re doing OK, don’t worry about the aftermarketthe aftermarket

The analysts will follow you through The analysts will follow you through think and thinthink and thin

The young entrepreneurial companies The young entrepreneurial companies will continue to get the spotlight this will continue to get the spotlight this yearyear

MythsMyths

You need to be profitable to get a You need to be profitable to get a high valuation in this markethigh valuation in this market

Of course, you want to be the next Of course, you want to be the next NetscapeNetscape

During your IPO, you’re the center of During your IPO, you’re the center of attentionattention

Somebody knows where the IPO Somebody knows where the IPO market is headedmarket is headed