IPO

Outline of IPO Process

1. Select underwriter 2. Register IPO with SEC 3. Print prospectus 4. Present roadshow 5. Price the securities 6. Sell the securities

Average IPO returns

96'-23% 98'-37% 99'-276% 00'-(-7%)

Price the securities

Based on the priced based on the value of the company and expected demand for the securities Examples of valuation methods: -net present value -earnings/price ratios

Google's attempt to stay private

Eric Schmidt: "we're generating cash. We don't ever need to go public" -didn't want to become a short sighted company

Disadvantages of IPO

Expensive-a firm may spend about 15-20% of money raised on direct expenses Reporting responsibilities-public companies must continuously file reports with the SEC and the stock exchange they list on Loss of Control-ownership is transferred to outsiders who can take control and even fire the entrepreneur

Types of underwriting

Firm commitment underwriting: -the underwriter buys the entire issue, assuming full financial responsibility for any unsold shares -most prevalent type of underwriting in US Best efforts: -they sell as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility

Why IPO?

New Capital (need money to expand) Future Capital Mergers and acquisitions

Google going public

Reports valued IPO at $16 billion estimated 2003 revenue: $1 billion, profit: $300 million

Print prospectus

a legal document desribing details of issuing corporation and proposed offering to investors -contains much of the info in registration statement -preliminary prospectus is called a "red herring"

Sell the securities

full fledged selling final prospectus must accompany the delivery of securities

Best underwriters

goldman sachs morgan stanley merrill lynch

Select an underwriter

investment firm that acts as an intermediary between a company selling securities and the investing public -they're the principle player in the IPO -they buy the securities for less than the offering price and accepts the risk of not being able to sell them

Register IPO

registration statement and file with SEC discloses all material information concerning the corporation making a public offering

Present road-show

road-show is presented to institutional investors around the country -allows firms to raise interest in the company and thus the price -allows the firm and its underwriters to gather information from potential investors

Is there a good time to do an IPO

there are clear "windows of opportunity" that open and close for IPO issuers Determinants of suitability: -general stock market condition -low unemployment, inflation, interest rates -frequency and size of all IP's in the financial cycle -during a bull market