Initial Public Offering

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Initial Public Offering

• By Eugene Profis

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What is it?

• The first time a company raises capital through
  the public financial markets.
• Accompanied by the listing of shares on a stock
  exchange

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Why do it?

• raise capital
• to expand its business
• finance acquisitions
• pay debt
• have greater and easier access to capital in the
  future.

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Process

• 1)Company selects an underwriter (UBS, Morgan
  Stanley, Merrill Lynch)
• 2)Registration with the SEC

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• 3)Prepares preliminary prospectus presents to
  institutional investors (road show)
• Includes description of the business, discussion
  of strategy, presentation of historical financial
  statements, explanation of recent financial
  results, management and their backgrounds and
  ownership.
• Main marketing document

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• 4) The deal is priced by the underwriters and
  management ? shares start trading on an exchange.
• Valuation

EV Equity Debt - Excess Cash Equity EV -
Debt Excess Cash
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Advantages of Going Public

• New Capital
• Future capital- company can go back and raise
  cash
• Cashing Out- for managers who want to use their
  wealth
• Mergers and Acquisitions- On the radar screen,
  easier to valuate
• Image- Higher profiles for public companies

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Disadvantages

• Loss of Control
• Greater Disclosure requirements-SEC filings
• Immediate cash-out not usually permitted
• High expense ratios with 15-25 of capital raised
  used for direct expenses of going public.

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The End