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Initial Public Offering

Initial Public Offering. James Excell Waldo Bezuidenhout Steph Hudema Ryan Ehmann. Agenda. What is an IPO? Advantages and Disadvantages IPO’s from the: Firms Perspective Investment Dealers Perspective Individual Investors Perspecive. What is an IPO and who is involved?.

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Initial Public Offering

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  1. Initial Public Offering James Excell Waldo Bezuidenhout Steph Hudema Ryan Ehmann

  2. Agenda • What is an IPO? • Advantages and Disadvantages IPO’s from the: • Firms Perspective • Investment Dealers Perspective • Individual Investors Perspecive

  3. What is an IPO and who is involved? • IPO stands for initial public offering and occurs when a company first sells its shares to the public. • Firm: • Going from private to public • Investment Banker: • Intermediary between firm and investors • Investors: • Institutional and private investors

  4. Advantages Vs. Disadvantages Advantages: • Going public raises capital • Better rates when issued debt • Can issue more stock. • Extra incentive for mergers/acquisitions • Can attract talent • Employee stock ownership plans Disadvantages: • Lack of privacy • Can lose control over company

  5. Firms Perspective • Steps for an IPO • Underwriter • Prospectus • Filing a Prospectus • Listing Requirements

  6. Firms PerspectiveUnderwriter • Hire an investment banker • Act as middleman • Help negotiate the deal • Amount of money to raise • Types of stock • Deal structured in a variety of ways • Firm commitment • Best efforts

  7. Firms PerspectiveProspectus • Detailed document • Provides investment information • Explains all aspects of a company’s business • Financial results • Growth strategy • Risk factors

  8. Firms PerspectiveFive Steps of Filing a Prospectus • File preliminary prospectus with securities commission • Regulatory authorities review prospectus • File an amended prospectus • Securities commission issues a final receipt • Approval allows sales of securities

  9. Examples of Listing Requirements • Pretax income • Net tangible assets • Number of shareholders • Share price • Minimum number of shares outstanding

  10. Investment Dealer • Investment banker in the US • Intermediary between issuers and investors • Offer important advice • Type of security • Features to be offered with security • Price • Timing of sale

  11. Investment Dealers • Barclays Global Investors Services Canada Limited • Berkshire Securities Inc. • Acumen Capital Finance Partners Limited • Emerging Equities Inc. • Evergreen Capital Partners Inc. • J.F. Mackie & Company Ltd.

  12. Investment Dealer • Step one: Negotiate the deal • Money to be raised • Type of security • Dealer commitment • Underwriter • Best efforts

  13. Investment Dealer • Underwriting • Purchase the security from the firm • Dealer assumes the risk • Issuer gets its money • Dealer profits from spread

  14. Investment Dealer • Underwriting syndicate • Group of investment dealers • Lead underwriter • Oversees the syndicate • Diversify their risk • Enhanced marketability

  15. Investment Dealer • Best efforts • Assume the role of agents in primary market • Do not buy the security • Less risk • Get commission • Smaller, speculative companies

  16. Investment Dealer • Step two: Registration statement • Filed with the SEC • Information about offering • Information about company • Financial statements • Management background • Legal problems • Where money is to be used • Insider holdings

  17. Investment Dealer • Step three: Cooling off period • SEC investigate registration statement • Set the effective date • Underwriter puts together the initial prospectus • AKA: The Red Herring • No offer price or effective date • Greensheet for in-house use only

  18. Investment Dealer • Step four: Go on the road • Dog and pony show • Hype the issue to institutional investors

  19. Investment Dealer • Step five: Prospectus • “Full , true, and plain disclosure of all material facts relating to the securities being offered” • Filed with securities commissions • Approval usually takes 3 weeks • Issue is “blue skied” • Sell the security • Prospectus must be mailed to all purchasers of the security no later than midnight on the second business day after the trade

  20. Individual Investor • Not the target market • Must have an account with investment bank • No history on many companies • Lock-up period • Flipping • Avoid Hype

  21. Sit back and count yo bling!

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