GOLDEN HORN UNIVERSITY
ENGHLISH BUSINESS MANAGEMENT
INITIAL PUBLIC OFFERING (IPO)
WHAT IS AN INITIAL PUBLIC OFFERING (IPO)
Introduction to Inıtial Public Offering (IPO)
The term initial public offering (IPO) is used into everyday speech during the late 1990s. Initial public offering is the process of private companies going public by sale of its stocks to general public.These companies which want to going public can be young or old company.Companies can increase equity capital with the help of an IPO. IPO can help issuing new shares to the public or the existing shareholders can sale their shares to the public without increasing any fresh capital. Initial public offerings have made instant billionaires of entrepreneurs such as Yahoo!’s Jerry Yang and Broadcast.com’s Mark Cuban.
What is an IPO
IPO simply means that selling sock to public. An initial public offering (IPO) is the company’s the first sale of stock to the public. If a company wants to sell stock shares to the general public, it wold have made an IPO. By doing so a company goes from the statuse private (no general shareholders) to public (a firm with general shareholders)
A company can increase money by issuing debt also issuing equity. But company has never issued equity to the public,it’s known as an IPO. Companies can be private or public.Private companies can hace shareholders,but they are few in number and the firm are not subject to regulation by the Security and Exchange Commission (SEC). There are small privately held business mostly but this does not mean there is not any large privately held business. For instance IKEA, Dommino’s Pizza and Hallmark Cards are all privately held businesses. In the United States, public companies report to the SEC. In other countries,must repor to comminities which part of government like SEC.An IPO usually takes about three to four months from the beginning to the first day’s trading on an exchange.
Why Is Though That IPO Matters For Businesses
For a company,the capital earned from selling its shares to public can majör boost the company’s growth making IPO attractive. The idea is to increase funds and have more luquidty or cash on hand by selling selling shares publicly. For investors, IPO is traded stock but on the other hand it has higher risk. Even then higher risk, it provides lots of financial opportunities. We can put in order some of those:
The dept problem is lower.
While there is higher market demand, a public company can always issue more stock.Those mergers and acquisitions are easier to do beaseuse stock can be issued as part of the deal.
Trading in the open markets means liquidity.This makes it possible to implement things like employee stock ownership plans, which helps attract top talent.
Enlarging and diversifying equity base.
Facilitating acquisitions (potentially in return for shares of stock).
At the same time IPO provide companies prestige and consequently listed on a major stock exchange like the NYSE or Nasdaq.
In the past, every company could not get IPO easily. It was most difficult than now. With the arrival of Internet, everything has changed. Getting IPO is easily but still most companies could not made a profit and do not plan on being profitable.
Disadvanteges of IPO
There are lots of advantages of IPO but on the other hands,there are lots of disadvanteges.We can put in order some of those:
• İmportant legal,accounting and marketing costs which continues.
• Financial and business informations must be disclosed.
• There are risks such as funding may not be increased.
• Competitors,suppliers and customers benefit from special informations which are special for company.
• Loss of control and stronger agency problems due to new shareolders.
How It Works (Example)
Revenue from the sale of stock shares in an IPO provides the issuing company with capital.Because of there are seeking source of capital to fund growth many start-up companies issue IPOs.
The first step for IPO by an underwriting investment bank. In addition the underwriter helps issuing company to settle on the price which the stock should be offered to investors. IPO the first tıme provides issuing to company financially benefit IPO shares trade between buyers and sellers on the open market with the underlying company receives no compension.
Getting Process of IPO
If company which wants to getting IPO,the company must go through some process.Firstly before recourse for IPO they must think about IPO’s risk sor benefits.The thinking period has some steps. They called that lock-up period,flipping and avoid hype.After these processes If they still wants to go public,they should recoures for IPO.The first step is called that underwriter process.After all these process the company must track their stocks.
This process includes to things what should be known and to be considered by company which wants to go public and hedges for achieves the company’s goals. Some of those called that the lock-up period,filipping and avoid the hype.
The Lock-Up Period:
When a company goes public, the underwriters make a lock-up agreement. Lock-up agreements are legally binding contracts between the underwriters and insiders of the company, prohibiting them from selling any shares of stock for a specified period of time. Lock-up agreements are legally binding contracts between the underwriters and insiders of the company. The period can range anywhere from three to twenty four months.(Ninety days is the minimum period stated under Rule 144 (SEC law)) Even then,this process can been last much longer by the underwriters.There is a one important problem about this agreements. when lockups expire all the insiders are permitted to sell their stock.And people trying to sell their stock to realize their profit and so that This excess supply can put severe downward pressure on the stock price.
Flipping is reselling a IPO stock in the first few days fot earn a profit quickly.This is not easy to do. The reason why people want it, companies want long-term investors who hold their stock.There are not any laws about flipping but there is a sanction,company’s broker can blacklist this company for future offerings.
Companies flip stock all the time and they make big money but this way is not fair.Because actually in a way flipping is buying power. Many IPOs that have big gains on the first day will come back to earth as the institutions take their profits.
It\'s important ,underwriters are salesmen. The whole underwriting process is intentionally hyped up to get as much attention as possible.Some IPOs soar high and keep soaring. But many end up selling below their offering prices within the year. buy a stock shouldn’t done for it\'s an IPO,should done it for it\'s a good investment.
The Underwriting Process
Getting IPO process of first step is very difficult but not impossiable.We should know how an IPO is done, as process known as underwriting.
The first step is for IPO,If a company wants to go public , an investment bank is hired:An investment bank is necessary (the way only Wall Street works). Underwriting is the process of increasing money by either debt or equity.(The biggest underwriters are Goldman Sachs, Credit Suisse First Boston and Morgan Stanley.)
At the first meeting investment bank and company negotiate the deal,about generally
Tracking stocks appear when a large company spins off one of its divisions into a separate entitiy. Necessary to thinking like a company there are many advanteges to issuing a tracking stock. For instance, the company gets to retain control over the subsidairy. All revenues and expenses of the division are separeted from the main company’s financial statements and attributed to the tracking stock.
While a tracking stock may be supn off in an IPO,it is not the same as the IPO of a private company going public.
6 Things You Must Do 36 Months Before Your IPO
There are some article and new about IPO.The first of these was written by Peter Cohen about 6 things we must do 36 months before our IPO.
“If you are skilled and lucky, you could be three years away from passing the $100 million revenue target needed for a successful initial public offering and skilled, you\'ve managed to reach that point without giving up control of your. And if you are even more lucky company to outside investors.
During a recent phone conversation, Lumenpulse CEO Francois-Xavier Souvay provided me some insight about preparing for an IPO. His LED lighting company, which garnered $42 million in sales last year had an April 15 IPO on the Toronto Stock Exchange, resulting in a $423 million valuation for the firm.
Souvay started planning Lumenpulse’s IPO in March 2011. Saying his products target the high-end construction market and are designed to use less energy and last, he noted that sales growth has been strong as prices have tumbled. \"In 2010, we had 30 people and we now have 250, a 78 percent compound annual growth rate.” “
He put in order to 6 things about what we should do 36 month before IPO
• Install formal financial controls.
Once your company is publicly traded, it needs to comply with reporting requirements that can’t be met without setting up formal processes. Mistakes in reporting can be very costly and distracting for top management.
Use the financial statements of the prospectus of a recently public company as a template for configuring your firm\'s monthly fiscal reporting. Develop a spreadsheet with an income statement, a cash flow statement and a balance sheet to present to the board and top management every month.
• 2. Hire a public company CFO
It’s not difficult to hire such a person if you can persuade him or her that you\'re leading a company with the potential to generate enough revenue to go public. After all, being the CFO of an established company can be a little dull after experiencing the thrill of a firm going public.
• 3. Build a strong board.
To make your IPO work, you\'ll also need a strong board of directors. Recruit board members with experience at public companies, particularly serving on a board\'s committees.
• 4. Hiring a skilled executive team.
Build an executive team with experience in hiring, training and motivating people in your company\'s key functions, such as finance, governance, human resources and compliance -not to mention sales, marketing, manufacturing and product development.
• 5. Focus on strategy.
Become skilled at articulating goals and communicating them in a way so others can easily see what they can do to realize them.
• 6.Get ready for the IPO.
With these foundational elements into place, work on the IPO. You’ll spend months negotiating with bankers and lawyers on key details. Once the prospectus is complete, you’ll present your company to big investors.”
Secondly,there are two news about IPO. One of those about Ferrari’s IPO price.
Ferrari IPO Prices at $52/Share, Within Range
“Ferrari officially priced its IPO at $52. According to the sources familiar with the matter, the demand for shares was \"well oversubscribed.\" The company has been planning its trading debut for Wednesday.
The price is at the top of the previously indicated range of $48 to $52 per share and gives Ferrari a market capitalization of around $9.8 billion. As part of the planned IPO, the carmaker is floating about 17.18 million shares to the public, representing about 9 percent of the company. Ferrari raised nearly $900 million in public capital in the process.”
Twilio Prices IPO at $15 a Share
“Twilio priced its IPO at $15 per share, above the range of $12 to $14 that the cloud software developer proposed in an updated IPO prospectus last week.
Everyone from Silicon Valley to Wall Street will be watching Twilio to see how the market reacts to the first U.S. venture-backed tech IPO of 2016.
San Francisco-based Twilio has grown rapidly (88 percent last year)by selling software that helps companies communicate with their customers using voice, video and messaging in anonymized fashion. For example, OpenTable uses Twilio to send reservation notifications, while the technology lets Nordstrom salespeople chat with customers who are waiting for a specific product to arrive.
As Twilio prepares to test the public markets Thursday, the company has yet to make a profit. In 2015, revenue almost doubled to $166.9 million, with a net loss of $35.5 million. Twilio said proceeds from the IPO will be used for investing in engineering and marketing, and for expanding its technology platform.
Twilio will trade under the ticker symbol TWLO, beginning Thursday on the NYSE.”
Figure 1.0 about The IPO page of Veeram Ornaments Ltd. captures the details.
Figure 1.1 about Turkish Companies’ IPO price values
Figure 1.2 about Tesla’s IPO.
Figure 1.3 about some famous companies’ years of IPO and their price values.
IPO Basics: Due Diligence
During the due diligence process, the company, its underwriters, and their lawyers focus on the registration statement.This process necassary for reviewing its business and to substantiate all claims in the registration statement. For example, if a company claims that it \"will have significant first-mover and time to market advantages as a software-based solution in the Internet postage market,\" the company must be able to back up that claim.
Besides inspecting the registration statement, the underwriters and counsel for both parties also question company officers and key employees. This includes a thorough discussion of the company\'s business and marketing plans, revenue projections, product development road map, and intellectual property portfolio, with an emphasis on identifying potential pitfalls.
Finally the company should be sensitive to their employees beceause this stuation affect an IPO.For instance ,a confidential settlement between a senior executive and a plaintiff for a fraud-related case, even if it had no merits, may affect public perception of the company and its leadership. Accordingly, a frank discussion with lawyer is encouraged.
How to Manage to Due Diligence Process for an IPO
There are lots of written article about due diligence.One of those article is written by Thomas France.
“The due diligence process is important and necessitate long time of am IPO.This process includes legal,financial and accounting due diligence.The main purpose of the process is limiting potential liability under securities law.Also due diligence plays critical role in marketing documents,assisting the underwriters to valur the company and price offering.
Given the significance of the due diligence process, it will entail a comprehensive investigation of all material legal, business, financial and accounting information regarding the company and will require gathering and verifying all of the material information included or incorporated by reference in the registration statement.”
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Cohen,Peter S. “6Things You Must Do 36 Months Before Your IPO”,23 Apr 2014 https://www.entrepreneur.com/article/233257
Nasr,Reem“Ferrari IPO Prices at $52/Share Within Range”20 Oct 2015
Thomas,Lauren“Twilio prices IPO at $15 a share” 22 Jun 2016 http://www.cnbc.com/2016/06/22/twilio-prices-ipo-at-15-a-share.html
Karl E. Case, Ray C. Fair and Sharon M. Oster/Principles of Economics (Boston:Pearson.Tenth Edition),235
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France,Thomas “How To Manage The Due Diligence Process For An IPO”, September 26, 2013 https://www.law360.com/articles/475791/how-to-manage-the-due-diligence-process-for-an-ipo
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