Initial Public Offering
James Excell
Waldo Bezuidenhout
Steph Hudema
Ryan Ehmann
Agenda
What is an IPO?
 Advantages and Disadvantages

IPO’s from the:
 Firms Perspective
 Investment Dealers Perspective
 Individual Investors Perspecive
What is an IPO and who is
involved?
IPO stands for initial public offering and
occurs when a company first sells its
shares to the public.
 Firm:



Investment Banker:


Going from private to public
Intermediary between firm and investors
Investors:

Institutional and private investors
Advantages Vs. Disadvantages
Advantages:
 Going public raises capital
 Better rates when issued debt
 Can issue more stock.


Extra incentive for mergers/acquisitions
Can attract talent

Employee stock ownership plans
Disadvantages:
 Lack of privacy
 Can lose control over company
Firms Perspective

Steps for an IPO
Underwriter
 Prospectus
 Filing a Prospectus
 Listing Requirements

Firms Perspective
Underwriter

Hire an investment banker


Act as middleman
Help negotiate the deal
Amount of money to raise
 Types of stock


Deal structured in a variety of ways
Firm commitment
 Best efforts

Firms Perspective
Prospectus
Detailed document
 Provides investment information
 Explains all aspects of a company’s
business

Financial results
 Growth strategy
 Risk factors

Firms Perspective
Five Steps of Filing a Prospectus
1.
2.
3.
4.
5.
File preliminary prospectus with
securities commission
Regulatory authorities review prospectus
File an amended prospectus
Securities commission issues a final
receipt
Approval allows sales of securities
Examples of Listing Requirements
Pretax income
 Net tangible assets
 Number of shareholders
 Share price
 Minimum number of shares outstanding

Investment Dealer
Investment banker in the US
 Intermediary between issuers and
investors
 Offer important advice

Type of security
 Features to be offered with security
 Price
 Timing of sale

Investment Dealers
Barclays Global Investors Services
Canada Limited
 Berkshire Securities Inc.
 Acumen Capital Finance Partners Limited
 Emerging Equities Inc.
 Evergreen Capital Partners Inc.
 J.F. Mackie & Company Ltd.

Investment Dealer

Step one: Negotiate the deal
Money to be raised
 Type of security
 Dealer commitment

 Underwriter
 Best
efforts
Investment Dealer

Underwriting
Purchase the security from the firm
 Dealer assumes the risk
 Issuer gets its money
 Dealer profits from spread

Investment Dealer

Underwriting syndicate
Group of investment dealers
 Lead underwriter

 Oversees
the syndicate
Diversify their risk
 Enhanced marketability

Investment Dealer

Best efforts
Assume the role of agents in primary market
 Do not buy the security
 Less risk
 Get commission
 Smaller, speculative companies

Investment Dealer

Step two: Registration statement
Filed with the SEC
 Information about offering
 Information about company

 Financial
statements
 Management background
 Legal problems
 Where money is to be used
 Insider holdings
Investment Dealer

Step three: Cooling off period
SEC investigate registration statement
 Set the effective date
 Underwriter puts together the initial
prospectus

 AKA:
The Red Herring
 No offer price or effective date

Greensheet for in-house use only
Investment Dealer

Step four: Go on the road
Dog and pony show
 Hype the issue to institutional investors

Investment Dealer

Step five: Prospectus
“Full , true, and plain disclosure of all material
facts relating to the securities being offered”
 Filed with securities commissions

 Approval
usually takes 3 weeks
Issue is “blue skied”
 Sell the security
 Prospectus must be mailed to all purchasers
of the security no later than midnight on the
second business day after the trade

Individual Investor
Not the target market
 Must have an account with investment
bank
 No history on many companies
 Lock-up period
 Flipping
 Avoid Hype

Sit back and count yo bling!