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IPOs – An Introduction

IPOs – An Introduction. Dylan Guss and Jason Rosenfeld. Different Types of Companies. Private vs. Public Most companies are private Small family business with some exceptions (e.g. Mars ) Usually, private businesses have fewer shareholders (that are partners or limited partners)

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IPOs – An Introduction

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  1. IPOs – An Introduction Dylan Guss and Jason Rosenfeld

  2. Different Types of Companies • Private vs. Public • Most companies are private • Small family business with some exceptions (e.g. Mars) • Usually, private businesses have fewer shareholders (that are partners or limited partners) • Private company structure examples: partnership, limited liability company (LLC)

  3. General Partnerships and LLCs General Partnerships are run by the general partners These partners have full liability for the partnership’s actions, even if they were not explicitly involved To avoid legal problems, partnerships will become Limited Liability Companies

  4. What is an IPO? Stands for “Initial Public Offering” A formerly private company will sell shares to the public on a stock exchange This process places an additional layer of regulation on the company

  5. Stock Exchanges NYSE, NASDAQ, AMEX, London, etc. About 18 major exchanges

  6. Why would a company go public? • To create a liquidity event for its investors • To diversify the portfolio of the investors so as to reduce risk • To raise capital so as to increase equity and value

  7. Disadvantages of a Public Company Disclosure Accounting transparency Costs for legal and accounting Exchange listing fee (yearly)

  8. The Process Find investment banks Communicate with the banks as they value your company The investment bank creates a prospectus for the company’s new security issuing Executives travel globally to put on a “roadshow” The investment banks find clients for the new security

  9. Our Experiences • Assigned IPO luncheons of possible firm investments • Skim prospectus • Attend roadshow • Specifically noting: Attendance, Questions asked, Management Predictions • Report to research staff

  10. Skullcandy: An Example • Underwriters • BofA Merrill Lynch, Morgan Stanley, etc. • Valuation: Between $17.00 and $19.00 • Eventually priced at $20, now at $13 • Risk Factors involved • Stagnant Innovation, Reputation tarnishing/ Sponsorship Maintenance, International expansion risk

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