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Corporate Financial Strategy 4th edition Dr Ruth Bender. Chapter 15 Floating a company. Floating a company: contents. Positioning Investor relations List of people involved in an IPO Methods of going public Indicative timetable for a placing Illustrative contents of listing particulars

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floating a company contents
Floating a company: contents

Positioning

Investor relations

List of people involved in an IPO

Methods of going public

Indicative timetable for a placing

Illustrative contents of listing particulars

Is it worth it?

Reasons for delisting

  • Learning objectives
  • A cash-in float grows the company
  • A cash-out float gives money to exiting shareholders
  • Reasons for floating a company
  • An IPO is a marketing exercise
  • Possible regulatory requirements for listing
  • Where to list?
  • Worldwide exchanges, some statistics
  • Depository receipts
  • Price: leave some money on the table
learning objectives
Learning objectives
  • Explain why a company might want to float its shares, and differentiate cash-in and cash-out floats.
  • Analyse the different stages of an IPO in relation to a marketing model of ‘7 Ps’
  • Understand the process for a listed company to issue further equity.
  • Set out the reasons why a company might delist its shares, and the potential conflicts of interest this entails.
a cash in float grows the company
A cash-in float grows the company

Pre-float

Post-float

Shareholders are A, B, C, D, E … and many others

Shareholders are A, B, C

a cash out float gives money to exiting shareholders
A cash-out float gives money to exiting shareholders

Pre-float

Post-float

Shareholders are A, D and many others

Shareholders are A, B, C, D, E

reasons for floating a company
Reasons for floating a company

Exit for investors (cash-out)

Diversification for shareholders

Shares to act as currency in acquisitions

Diversification of shareholders

Fundraising

(cash-in)

Better management incentives

Future financial flexibility

Opportunistic

Desire for prestige

where to list
Where to list?
  • Where are you doing business?
  • Where are there likely to be the most shareholders for your company?
  • Liquidity
  • Specialization
  • Price multiples
  • Regulatory and reporting requirements
  • Diversification of investor base
  • Costs
worldwide exchanges some statistics
Worldwide exchanges, some statistics

IPO FUNDRAISING IN MAJOR STOCK EXCHANGES IN 2011

US $ bn

1 Hong Kong 36.1

2 New York 31.4

3 Shenzhen 26.2

4 London 19.2

5 Shanghai 16.3

6 NASDAQ10.7

7 Singapore 7.6

8 Spain 5.3

9 Brazil 4.4

10 Korea 3.6

Includes REITs. Source: Dealogic data from http://www.hkex.com.hk/eng/newsconsul/newsltr/2012/Documents/2012-01-02-E.pdf

MARKET CAPITALIZATIONS OF MAJOR STOCK EXCHANGES AT END 2011

US $ bn

1 NYSE Euronext (US) 11 796

2 NASDAQ 3 845

3 Tokyo Stock Exchange Group 3 325

4 London Stock Exchange Group 3 266

5 NYSE Euronext (Europe) 2 447

6 Shanghai Stock Exchange 2 357

7 Hong Kong Exchanges 2 258

8 TMX Group (Toronto) 1 912

9 BM&FBOVESPA (Brazil) 1 229

10 Australian Securities Exch 1 198

Source: http://www.world-exchanges.org/files/file/stats%20and%20charts/2011%20WFE%20Market%20Highlights.pdf

depository receipts
Depository receipts
  • GDR – global depository receipt – traded outside the USA
  • ADR – American depository receipt – traded inside the USA and denominated in US$
    • Different levels issued, depending on whether they represent new shares (effectively an IPO) or existing shares, and where the shares are traded, and the level of disclosure required.

Company outside USA

Bank in USA

Investors in USA

Issues certificate denoting multiple underlying shares to

Issues certificates to

price leave some money on the table
Price: leave some money on the table

Graph taken (with permission) from: Initial Public Offerings: Updated Statistics

Jay R. Ritter, 2013

http://bear.warrington.ufl.edu/ritter/ipodata.htm

positioning
Positioning

IPOs are commonly valued using market multiples, so price will be higher if comparators are highly priced

  • Chose a time to float when markets are trading at high multiples
  • Choose an exchange that values your sector
  • Try to be allocated into a highly rated sector
list of people involved in an ipo
List of people involved in an IPO
  • Company and its directors
  • Sponsor
  • Broker / bookrunner
  • Underwriters
  • Reporting accountants
  • Lawyers
  • Financial public relations
  • Registrar
  • Receiving bankers
  • Security printers
indicative timetable for a placing
Indicative timetable for a placing

Sourced from London Stock Exchange publications

is it worth it
Is it worth it?

Disadvantages of IPO

  • Lose control of the co.
  • Hassle factor (incl. governance regs)
  • Time consuming – who runs the business?
  • Unwelcome public accountability
  • Short-term emphasis?
  • Susceptible to market conditions
  • Threat of takeover
  • Cost

Advantages of IPO

  • Marketability of shares
  • Source of cash
  • Increased profile – company and directors
  • Exit for institutions
  • Chance to make acquisitions for paper
  • Management incentives
reasons for delisting
Reasons for delisting
  • Directors feel the market is under-valuing the company
  • Little liquidity
  • No need to raise more funds
  • Fear of hostile takeover
  • Wish to restructure out of the public eye

Shareholders need to be satisfied that the directors are treating them fairly, and not buying the company at an under-value