Presentation Transcript

1. Small Business Finance…

   Spring 2010 URG MBA Program Chapters 12-14
2. Raising Capital from Public Sources IPO Secondary Offering Examples? Seasoned Offerings Private placement
3. Deciding Factors Product Market Sales Profitability Growth Management Financial Condition Amount needed Investor-basis Value of Offering
4. Advantages of Public Offering Accessibility to Capital Liquidity and the rise of the company’s value Improved ability to barrow money Possible expansion and mergers Gain large profits Provide employee incentives Improvement of level of management Market awareness
5. Disadvantages Loss of Privacy Expectations of short term Reduced operating flexibility Restrictions on sales by managers Legal exposure Cost of IPO Current expenses Loss of founder’s control Dividend polidy
6. US Stock Market Stock Exchanges NY exchange Over-the-counter trading NASDAQ Implications???? Global Implications?
7. IPO Team Underwriters Based on: Reputation & Experience Commitment to the IPO Distribution ability Market-making and share-coverage capabilities Provide additional services after IPO Payment
8. IPO Team (continued) Underwriting Syndicate Made up of investment banks Distributes the risk Lead Manager controls the “book of orders” (listings of IPO’s) Legal Counsel Underwriter Compensation Traditionally 20%
9. IPO Team (continued) The CPA Prepares financial statements Adjusts the registration statement to financial statements Provides “comfort” to underwriters Sort of like an appraiser provides comfort for a bank The Cost of IPO 7%
10. IPO Process Signing the Letter of Intent Quiet Period – 25 days-SEC publications Organizational Meeting Preliminary Registration Statement Due Diligence – much reporting, honesty and scrutiny Filing the Prelim. Reg. statement with SEC Amended Registration Statement
11. IPO Process (continued) Preliminary Prospectus (Red Herring) Road Show Due Diligence Meeting Pricing, signing UW agreement, registration statement Selling the shares to the public and closing Trading, stabilization, exercise uw’s option (Green Shoe)
12. Underwriting Agreement Firm Commitment offering – Underwriter purchases securities – uw commission Best effort offering – Underwriters sell shares at best offer Registration Statement Required Two parts – Prospectus & description of the management and board of directors Risk analysis and financial information
13. Liability under US Securities Law Securities Act of 1933 Requires documentation or stocks are a liability All material musts be accurate or as accurate as the company can make it Registration process has been changed (1998) Publications and analysis are ongoing (cancelled quiet period) Prospectus filing is done electronically Required to lay out terms of offering prior to investor purchase Non-permissible free writing outside the prospectus Public offerings have priority over private
14. After IPO Periodic reporting Annual Report Quarterly Report Reporting of material events and stock exchange rules Much like IRISA rules Proxy Rules Prohibition on Insider Trading Martha Stewart!
15. Selling Exempt Shares Rule 144 Restricts selling of shares for one year after purchase Regulation S If US communication is used to raise funds for a French company in France Regulation A Lowers costs and saves on financial statements Purchases up to $5 million
16. Foreign Companies Raising Capital International Disclosure rules Special treatment from SEC = relief Not required to file quarterly and annual reports Don’t have to send annual reports to shareholders Instead of ordinary shares, ADR are issued (American Depositary Receipts)
17. Mergers, Acquisitions, bankruptcies and Dissolution Corporate Restructuring Merger Consolidation Acquisition Leveraged buy-out Going private Divestiture Spin-off
18. Strategic Classifications Horizontal Acquisitions Same field – telephone, telecommunications Sears-K-mart Cyprus-Amex Vertical Acquisitions Different layer in the production process Examples Conglomerate Acquisitions Target company is a totally different field than the purchaser
19. What Causes Mergers and Acquisitions? Operational Synergy Reducing development times Change in market power Improved Managerial Capabilities Diversification Tax advantages
20. Case Study – The Sale of Chromatis to Lucent Pages 277 to end of chapter