Going Public 

& Initial
Public Offerings
JUN SUN
DBMN 610A – CORPORATE FINANCE
 WHAT IS AN IPO?

INITIAL PUBLIC OFFERING

IPO

AnIPO is the first sale of a

company’s shares to the public and
the listing of the shares on the
stock exchange.
Why do companies go public?
 The first reason is “CASH”
Why do companies go for the IPO?

 Companies get the chance to enhance

their publicity.
 Provides access to lots of cash to expand
operations.
 Companies can pay their debts.
IPOs ARE COSTLY

 Direct costs:
 Fees paid to lawyers, accountants consultants and investment banks

 Indirect costs:
 Increased formalization in the decision process
 Resulting burden of disclosure requirements and the compliance costs
 Increased pressure for short-term performance
 Underpricing
 Risks
 Exposure to takeover
How companies go for an IPOs?

 First seeks out Foreign Investment Bank, investment banks. So now these
investment bankers actually do a complete analysis of the company. They
study their business models, they forecast the financials and finally they
come up with something called the overall company's valuations.
 Next, the company needs to file a registration statement with the SEC or the
Securities Exchange Commission. This statement includes information such as
the company's operations, finances, business model, etc.
How companies go for an IPOs?

 The final part is where the company with the help of investment bankers to
prepares a documented prospectus this prospect is actually distributed to
potential investors such as large institutions and wealthy individuals. This
prospectus contains information such as the company's performance, future
prospects, etc.
What is the IPO process?

 Companies meet investment banks that help in preparing their valuation.

 Companies file a registration statement with the security exchange
commission
 Investment bankers prepare a company’s prospectus and distribute it to
potential investors to help the companies determine their IPO value and the
number of shares.
 And finally, the company goes public on a fixed date.
How does the company know what stock
value to set?
 Actually, the company management along with investment bankers to lots of
roadshows, roadshow mean basically it means that they connect and invite
lots of interested investors to get a fair indication of how many shares they're
interested in buying and attended price. And after this roadshow, the
company actually has a fair idea of how many people are willing to buy the
shares, and what numbers and the tentative price accordingly they said the
IPO price and the number of shares which each investor can get
Going public has many advantages
attached to it.
 IPO actually helps with the publicity part of the company, which will
eventually help the company with its extensive customer base.

 Another advantage is that it will lead to an inflow of cash that the company
can use to expand its operations or pay off its debt.
Going public has many advantages
attached to it.
 One of the other advantages is that the founder, early investors on even
employees who were given ESOPs of the company, hey can earn a lot of
money when the company goes public because it's like a liquidity event for
them. I'm sure you must have heard about people becoming millionaires. Or
even billionaires when the company goes public.
Going public has disadvantages attached
to it as well
 The flip side is that public companies are under constant regulation by
authorities such as the Security and Exchange Commission or the SEC.
 And with this they have to file for the quarterly report, the annual reports as
well as report anything any changes related to the management shareholding
Going public has disadvantages attached
to it as well
 Another disadvantage is that these companies, the public companies are
under huge market pressure because they're under constant scrutiny from the
investors. If the company fails to deliver on the financial results, then the
management or maybe the owner might even get fired from their own
company.
What is the best time to invest in these
IPOs?
 First even looking at a short-term profit from trading then you can definitely
invest in these IPOs and reap the profits from the price increase on the very
first day. But after that first day, you at least where your profits. However, if
you are considering from a long-term investment plan perspective, in that
case, you must do your proper research about the company. Its cash flows,
track records, finances, etc. And only then you should invest in the IPO.
What is the best time to invest in these
IPOs?
 another approach would be to wait and watch and watch for a few weeks,
months, or maybe even a few years where the frenzy has disappeared. Prices
are down. That's when you invest. A classic example would think of Facebook,
Facebook in the initial three years if the stock went nowhere. But after it
came out of the slump. It's now at an all-time high.
Should you invest in IPOs?

 Investing in IPOs is one of the best ways to create your portfolio of

investments. Remember, just invest in Nigeria because it is hot and everyone
is interested. It really doesn't make sense. You should do your own research
before investing. And we have also seen and heard many stories that people
have made fortunes out of these IPOs

 However, with every market investment, there comes a certain degree of risk
so putting your money in IPO also depends on how much risk are you willing to
tolerate.
 In 2019, Uber, the popular ride sharing app is set to become a public company
undergoing what may very well be the largest IPO in US history. It's just one
of the big names lined up to begin trading on stock exchanges that year
1. Hire Investment Banker

2. File a Registration Statement

3. Create a prospectus
Oversubscribe

 Now sometimes an IPO will be oversubscribe, meaning that the demand for
shares is higher than the number of shares being sold in the IPO. And when
this happens it means that some investors will only get a fraction of what
they asked for, while others will be left with nothing.
 But the last with all regulatory requirements met and IPO price set and
subscriptions confirmed the IPO date comes in the company sells their shares
as per their allocation, celebrating their success with the ringing of the
exchange bell in honor that notable IPOs received in a very euphoric moment
for those involved.
The primary objective of an IPO is to
raise money
 That means that the investment banker and the company are going to try and
get the highest price for their shares. After all, the owner is effectively
cashing out all or at least part of their ownership. So naturally do want to sell
high, something that goes against an investor's objective of buying low.
IPO introduced a number of unique risks
and disadvantages
 Firstly, there's a large information gap between the buyers and the sellers of
the company here. the stock prospectus helps highlight important details.
There's a very limited range of historical data.
IPO introduced a number of unique risks
and disadvantages
 Secondly, individual investors like you and I are at a particular disadvantage
with IPOs in that we often can't get access to the IPO allocation. The majority
of an IPO shares are generally allocated to large institutional investors made
it very difficult for an investor to receive part of the allocation.
 In the end, it's impossible to know whether up-and-coming IPOs like Uber well
over or underperform. It's easy to get caught up in the hype surrounding these
companies. But it's important to recognize the added risks and remain
objective when enthusiasm runs rampant.

 “Be fearful when others are greedy and greedy when others are fearful”
Thank you