Internal Public

Offering

International Black Sea University

Business Management Faculty, Finance major

Financial Markets & Institutions By:

Nino Bazhunaishvili24/09/13

Contents

History Reasons for Listing

1. Advantages2. Disadvantages

Procedure1. Advance Planning2. Pricing of IPO3. Quiet period4. Delivery of shares

5 Biggest IPO Fails in History Largest IPOs in History 2013 IPO Calendar

IPO

IPO An initial public offering (IPO) is the process through which a privately held company issues shares of stock to the public for the first time. Also known as "going public," an IPO transforms a small business from a privately owned and operated entity into one that is owned by public stockholders.In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market.

HISTORY

The earliest form of a company which issued public shares was the publicani during the  Roman Republic

There is evidence that these shares were sold to public investors and traded in a type of over-the-counter market in the Forum, near the Temple of Castor and Pollux . The shares fluctuated in value, encouraging the activity of speculators, or quaestors.

HISTORY(CONT)

In March 1602 the “Vereenigde Oost-Indische Compagnie (VOC), or Dutch east Indian company was formed.

• The VOC was the first modern company to issue public shares, and it is this issuance, at the beginning of the 17th century, that is considered the first modern IPO.

• The company had an original paid-up share capital of 6,424,588 guilders.

•  Each share was worth 3000 guilders (roughly equivalent to US 1500$).

In the United States, the first IPO was the public offering of Bank of north America around 1783

ADVANTAGES When a company lists its securities on a public exchange, the money paid by the investing public for the newly issued shares goes directly to the company (primary offering) as well as to any early private investors who opt to sell all or a portion of their holdings (secondary offering) as part of the larger IPO.An IPO accords several benefits to the previously private company:

Enlarging and diversifying equity baseEnabling cheaper access to capitalIncreasing exposure, prestige, and public imageAttracting and retaining better management and employees through liquid equity participationFacilitating acquisitions (potentially in return for shares of stock)Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc.

DISADVANTAGES

There are several disadvantages to completing an initial public offering:

Significant legal, accounting and marketing costs, many of which are ongoingRequirement to disclose financial and business informationMeaningful time, effort and attention required of senior managementRisk that required funding will not be raisedPublic dissemination of information which may be useful to competitors, suppliers and customers.Loss of control and stronger agency problems due to new shareholders

To select the underwriter

1.

2.

3.

4.

• Consisting of attorneys

• Independent of

accountants

• Financial printer

To assemble an underwriting

team

prepare an initial registration statement

according to SEC regulations

Throughout the SEC review

company also begins making

controlled efforts to market the

offering.

After a successful offering, the underwriter meets with all parties to

distribute the funds and settle all expenses. At that time the transfer

agent is given authorization to forward the securities to the new owners.

Procedure

• Best Effort

• Firm commitment

• All or non

• Bought deal

PRICING IPOA company planning an IPO typically appoints a lead manager, known as a bookrunner, to help it arrive at an appropriate price at which the shares should be issued. There are two primary ways in which the price of an IPO can be determined. Either the company, with the help of its lead managers, fixes a price ("fixed price method"), or the price can be determined through analysis of confidential investor demand data compiled by the bookrunner.

The effect of "initial underpricing" an IPO is to generate additional interest in the stock when it first becomes publicly traded. The danger of overpricing is also an important consideration. If a stock is offered to the public at a higher price than the market will pay, the underwriters may have trouble meeting their commitments to sell shares. 

QUIET PERIOD

• Under American securities law, there are two time windows commonly referred to as "quiet periods" during an IPO's history. The first and the one linked above is the period of time following the filing of the company's S-1 but before SEC staff declare the registration statement effective.

• In terms of an IPO, the period where an issuer is subject to a SEC ban on promotional publicity. The quiet period usually lasts either 40 or 90 days from the IPO.

DELIVERY OF SHARES

For most small businesses, the decision to go public is made gradually over time as changes in the company's performance and capital needs make an IPO seem more desirable and necessary. But many companies still fail to bring their plans to sell stock to completion due to a lack of planning.

5 Biggest IPO Fails in History 1.

In 2012, Mark Zuckerberg launched Facebook in a $16 billion IPO. Initially the company had filed for a $5 billion IPO and the company had been valued at $104 billionEach share was worth $38Shares struggled to keep their head above water on the opening of trading on May 18th, but surprisingly there were 460 million shares changing hands and that was the largest ever trading volume for an IPO.Today Facebook has a stock value of $24.33.

5 Biggest IPO Fails in History2.

eToys wasn’t always a dismal failure. It was once at the top of the toy market, competing with Toys ‘R’ us and the others and giving as good as they could get. The prices of a share should have been somewhere around the $10-$12-mark on opening in 1999. But, the final offering ended up at $20. The IPO OF eToys, at the time, was the fifth-biggest debut in history, giving a start-up with just $35 million in revenue a bigger market capitalization than Toys 'R' Us, which at the time had $11 billion in sales.

5 Biggest IPO Fails in History 3.

Pets.com is another one that rolled over and died with its legs in the air. It opened shop in 1998 and lasted just over two years.It raised $82 million for its IPO and shares were at $14.

5 Biggest IPO Fails in History4.

Vonage is a voice-over IP network. It still exists and is one of the few that managed to scrape through even though it hit rock bottom. It went public in 2006 at a share price of $17. It dropped by over $23% in just that first day and ended up at $13.

The IPO raised $531 million for the company

LastMinute.com is still around too, but only by being bought up itself at the last minute by Travelcity in 2005. LastMinute.com is specialized in anything that you can buy at the last minute from cheap airline tickets to the theatre tickets for the show you always wanted to see. At its peak it had 500, 000 visitors per day.share price of 380p on the London Stock Exchange valued the company at £571 million. Shares rose by 28% on that first day to 511p.

5 Biggest IPO Fails in History5.

Largest IPOs #10: Bank of China (PINK:BACHY) isn’t even listed on a major U.S. exchange, but its 2006 IPO topped $11.2 billion. As the name implies, it’s a massive China financial operation

#9: Deutsche Telekom (PINK:DTEGY) is another pink sheet powerhouse that offered stock elsewhere and not on major U.S. exchanges. Proceeds from the 1996 IPO topped $12.5 billion at the time. If adjusted for inflation, this IPO would be even higher up the list, too.

#8: Nippon Telegraph and Telephone (NYSE:NTT) is now offered as an ADR, or American Depositary Receipt, for domestic investors. But at the time of its 1987 IPO, the company wasn’t available on the NYSE. Nippon raised $13.7 billion (not adjusting for inflation)

#7: Enel (PINK:ENLAY) is a former nationalized energy company in Italy, which has never been listed on U.S. exchanges. Proceeds from the 1999 IPO total $16.6 billion.

#6: NTT DoCoMo (NYSE:DCM) is one of Japan’s leading providers of mobile and data services. Shares went public in Tokyo back in 1998, raising $18.1 billion (not adjusted for inflation). Shares weren’t available as ADRs until years later

Largest IPOs

#5: Visa (NYSE:V) finally places an American IPO on the list. The payment processor was the last big IPO before the market for public offerings went into hibernation due to the financial crisis. In 2008, Visa raised $19.7 billion with its IPO.

#4: American International Assurance, or AIA, is a major insurance company based in Hong Kong. It once was a division of bailout target American International Group (NYSE:AIG) but was spun off in part to satisfy debts. The proceeds of the AIA IPO were $20.5 billion in 2010.

Largest IPOs

#3: Industrial and Commercial Bank of China (PINK:IDCBY) is another big Chinese financial outfit that doesn’t trade on major domestic exchanges. The 2006 IPO of this bank raised $21 billion through simultaneous listings on both the Hong Kong Stock Exchange and Shanghai Stock Exchange to tally the largest IPO in history at the time.

#2: Agricultural Bank of China topped this previous IPO, however, in 2010 with the largest IPO in history … again, at the time anyway. The tally was a total $22.1 billion in proceeds.

Largest IPOs

#1: General Motors (NYSE:GM) might surprise you as the top IPO in history. The $23.1 billion public offering of GM stock back in 2010 was performed, in part, to pay back the government. At the time, Uncle Sam owned a 61% stake in the automaker. Unfortunately, the feds didn’t recoup as much cash as they had hoped. Ultimately, taxpayers lost money on the automaker bailouts despite GM’s record-breaking IPO.

Largest IPOs

2013 IPO CalendarSquare - Starbucks in August partnered with Square in a $25 million deal that lets the mobile payments company process all of the coffee giant’s debit and credit transactions. Square should continue gaining popularity as the “” industry takes off. Besides being a major player in this up and coming industry, Square is often thought of as a takeover target.

Tableau Software – This Seattle, WA-based company could be the next big cloud IPO. Tableau is a data-visualization company which devises programs that turn complex databases into graphics and maps. Over 10,000 companies including Apple Inc. (Nasdaq: AAPL) and Coca-Cola Co. (NYSE: KO) use Tableau products, and after the success Workday and Splunk had many are expecting Tableau to have similar results.

Silver Spring Networks- Located in Silicon Valley, Silver Spring Networks sells cloud-based, power grid management hardware and software to utility companies. In 2011 its revenue grew 238% and it almost went public branded as a green energy company, but put the deal on the shelf after the Solyndra scandal and has since repositioned itself as a cloud company involved in “cleantech.” But, with the success SolarCity Corp (Nasdaq: SCTY) had in its 2012 IPO, things are looking up for green energy. Add that to the success enterprise software, or cloud companies have had, and Silver Spring’s IPO looks very promising.

2013 IPO Calendar

Glam Media- Glam Media is a vertical-media company with entertainment and lifestyle Websites and blogs mostly geared toward a female demographic. The company generates revenue through ads and has been profitable since 2010. Glam continues to grow through acquisitions and currently has 356 million unique visitors per month to its site. In June of 2012 Glam was rated the #1 digital lifestyle Website in the world by comScore.

2013 IPO Calendar

Rapid7 & WhiteHat Security- One or both of these companies could be the next huge cyber security play, as both are thought to go public in 2013. Rapid 7 saw its revenue grow by 75% in the third quarter of 2012 and continues to expand its product portfolio. WhiteHat was founded by a former Yahoo! Inc. (Nasdaq: YHOO) information security chief, and dozens of Fortune 500 companies rely on WhiteHat for protection. As the world becomes more complex, uncertain, and digital, expect cyber security companies to grow in importance and value. Plus, both of these are prime takeover targets by larger security and defense firms

2013 IPO Calendar

Dave & Buster’s- In October it pulled its IPO off the shelf, but keep an eye out for an offering some time in 2013. The company provides the best arcade and gaming experience for adults and was hoping to join other restaurant companies such as Bloomin’ Brands Inc. (Nasdaq: BLMN) and Chuy’s Holdings Inc. (Nasdaq: CHUY) that have had successful IPOs this past year.

Twitter- This would be 2013′s biggest tech IPO, and after Facebook’s debacle, Twitter’s IPO may really define social media investments. Recent announcements though indicate a Twitter IPO may have to wait until 2014. The company recently said it expects to generate up to $1 billion in revenue by 2014, and there’s always speculation that it could be acquired by Google (Nasdaq: GOOG) or another company. Its revenue model is still a little shaky but Twitter has proven to be able to monetize mobile users much quicker and effectively than Facebook.

2013 IPO Calendar

Upcoming IPOs to Avoid

Pinterest & Tumblr- Both of these companies face issues similar to Facebook’s in terms of generating profits and revenue from their user base, as well as monetizing mobile users. Pinterest has not proven its business strategy is legitimate and has even admitted it does not know how to turn its user base into profits. While just as popular as Pinterest and Facebook, Tumblr is an even riskier IPO to consider, and generates minimal revenue. Even though both sites are incredibly popular, their fate as public companies could easily follow Facebook’s path.LivingSocial- The vouchers Website might go public in 2013, but its business structure is too similar to Groupon Inc.’s (Nasdaq: GRPN), which has done awful since its IPO. After touching $30 on its IPO day, GRPN immediately began to sell off and currently trades around $5. If LivingSocial has an IPO make sure to avoid it.

Bibliography

http://www.investopedia.com/terms/i/ipo.asphttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://www.nasdaq.com/markets/ipos/http://www.hoovers.com/ipo-central/100004160-1.htmlhttp://economictimes.indiatimes.com/ipo

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