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Initial Public OfferingInitial Public Offering
James ExcellJames ExcellWaldo BezuidenhoutWaldo Bezuidenhout
Steph HudemaSteph HudemaRyan EhmannRyan Ehmann
AgendaAgenda
What is an IPO?What is an IPO?Advantages and Disadvantages Advantages and Disadvantages
IPO’s from the:IPO’s from the:Firms PerspectiveFirms Perspective Investment Dealers PerspectiveInvestment Dealers Perspective Individual Investors PerspeciveIndividual Investors Perspecive
What is an IPO and who is What is an IPO and who is involved?involved?
IPO stands for initial public offering and IPO stands for initial public offering and occurs when a company first sells its occurs when a company first sells its shares to the public. shares to the public.
Firm:Firm:Going from private to publicGoing from private to public
Investment Banker:Investment Banker: Intermediary between firm and investorsIntermediary between firm and investors
Investors:Investors: Institutional and private investorsInstitutional and private investors
Advantages Vs. DisadvantagesAdvantages Vs. Disadvantages
Advantages:Advantages: Going public raises capitalGoing public raises capital Better rates when issued debtBetter rates when issued debt Can issue more stock.Can issue more stock.
Extra incentive for mergers/acquisitions Extra incentive for mergers/acquisitions Can attract talentCan attract talent
Employee stock ownership plansEmployee stock ownership plans
Disadvantages:Disadvantages: Lack of privacy Lack of privacy Can lose control over companyCan lose control over company
Firms PerspectiveFirms Perspective
Steps for an IPOSteps for an IPOUnderwriterUnderwriterProspectusProspectusFiling a ProspectusFiling a ProspectusListing RequirementsListing Requirements
Firms PerspectiveFirms PerspectiveUnderwriterUnderwriter
Hire an investment bankerHire an investment bankerAct as middlemanAct as middleman
Help negotiate the dealHelp negotiate the dealAmount of money to raiseAmount of money to raiseTypes of stockTypes of stock
Deal structured in a variety of waysDeal structured in a variety of waysFirm commitmentFirm commitmentBest effortsBest efforts
Firms PerspectiveFirms PerspectiveProspectusProspectus
Detailed documentDetailed documentProvides investment informationProvides investment informationExplains all aspects of a company’s Explains all aspects of a company’s
businessbusinessFinancial resultsFinancial resultsGrowth strategyGrowth strategyRisk factorsRisk factors
Firms PerspectiveFirms PerspectiveFive Steps of Filing a ProspectusFive Steps of Filing a Prospectus
1.1. File preliminary prospectus with File preliminary prospectus with securities commissionsecurities commission
2.2. Regulatory authorities review prospectusRegulatory authorities review prospectus
3.3. File an amended prospectusFile an amended prospectus
4.4. Securities commission issues a final Securities commission issues a final receiptreceipt
5.5. Approval allows sales of securitiesApproval allows sales of securities
Examples of Listing RequirementsExamples of Listing Requirements
Pretax incomePretax incomeNet tangible assetsNet tangible assetsNumber of shareholdersNumber of shareholdersShare priceShare priceMinimum number of shares outstandingMinimum number of shares outstanding
Investment DealerInvestment Dealer
Investment banker in the USInvestment banker in the US Intermediary between issuers and Intermediary between issuers and
investorsinvestorsOffer important adviceOffer important advice
Type of securityType of securityFeatures to be offered with securityFeatures to be offered with securityPrice Price Timing of saleTiming of sale
Investment DealersInvestment Dealers
Barclays Global Investors Services Barclays Global Investors Services Canada Limited Canada Limited
Berkshire Securities Inc.Berkshire Securities Inc.Acumen Capital Finance Partners Limited Acumen Capital Finance Partners Limited Emerging Equities Inc.Emerging Equities Inc.Evergreen Capital Partners Inc. Evergreen Capital Partners Inc. J.F. Mackie & Company Ltd. J.F. Mackie & Company Ltd.
Investment DealerInvestment Dealer
Step one: Negotiate the dealStep one: Negotiate the dealMoney to be raisedMoney to be raisedType of securityType of securityDealer commitmentDealer commitment
UnderwriterUnderwriterBest effortsBest efforts
Investment DealerInvestment Dealer
UnderwritingUnderwritingPurchase the security from the firmPurchase the security from the firmDealer assumes the riskDealer assumes the risk Issuer gets its moneyIssuer gets its moneyDealer profits from spreadDealer profits from spread
Investment DealerInvestment Dealer
Underwriting syndicateUnderwriting syndicateGroup of investment dealersGroup of investment dealersLead underwriterLead underwriter
Oversees the syndicateOversees the syndicate
Diversify their riskDiversify their riskEnhanced marketabilityEnhanced marketability
Investment DealerInvestment Dealer
Best effortsBest effortsAssume the role of agents in primary marketAssume the role of agents in primary marketDo not buy the securityDo not buy the securityLess riskLess riskGet commissionGet commissionSmaller, speculative companiesSmaller, speculative companies
Investment DealerInvestment Dealer
Step two: Registration statementStep two: Registration statementFiled with the SECFiled with the SEC Information about offeringInformation about offering Information about companyInformation about company
Financial statementsFinancial statementsManagement backgroundManagement backgroundLegal problemsLegal problemsWhere money is to be usedWhere money is to be usedInsider holdingsInsider holdings
Investment DealerInvestment Dealer
Step three: Cooling off periodStep three: Cooling off periodSEC investigate registration statementSEC investigate registration statementSet the effective dateSet the effective dateUnderwriter puts together the initial Underwriter puts together the initial
prospectusprospectusAKA: The Red HerringAKA: The Red HerringNo offer price or effective dateNo offer price or effective date
Greensheet for in-house use onlyGreensheet for in-house use only
Investment DealerInvestment Dealer
Step four: Go on the roadStep four: Go on the roadDog and pony showDog and pony showHype the issue to institutional investorsHype the issue to institutional investors
Investment DealerInvestment Dealer
Step five: ProspectusStep five: Prospectus ““Full , true, and plain disclosure of all material Full , true, and plain disclosure of all material
facts relating to the securities being offered”facts relating to the securities being offered”Filed with securities commissionsFiled with securities commissions
Approval usually takes 3 weeksApproval usually takes 3 weeks Issue is “blue skied”Issue is “blue skied”Sell the securitySell the securityProspectus must be mailed to all purchasers Prospectus must be mailed to all purchasers
of the security no later than midnight on the of the security no later than midnight on the second business day after the tradesecond business day after the trade
Individual Investor Individual Investor
Not the target marketNot the target marketMust have an account with investment Must have an account with investment
bankbankNo history on many companiesNo history on many companiesLock-up periodLock-up periodFlippingFlippingAvoid HypeAvoid Hype