4th edition
Dr Ruth Bender
Chapter 15
Floating a company
Positioning
Investor relations
List of people involved in an IPO
Methods of going public
Indicative timetable for a placing
Illustrative contents of listing
particulars
Is it worth it?
Reasons for delisting
Learning objectives
1. Explain why a company might want to float its shares, and differentiate
cash-in and cash-out floats.
2. Analyse the different stages of an IPO in relation to a marketing model
of 7 Ps
3. Understand the process for a listed company to issue further equity.
4. Set out the reasons why a company might delist its shares, and the
potential conflicts of interest this entails.
Pre-float
Post-float
Shareholders are
A, B, C
Shareholders are
A, B, C, D, E
and many others
Pre-float
Post-float
Shareholders are
A, B, C, D, E
Shareholders are
A, D and many
others
Diversification for
shareholders
Shares to act as
currency in
acquisitions
Fundraising
(cash-in)
Diversification of
shareholders
Better
management
incentives
Future financial
flexibility
Opportunistic
Product
Place
Price
Positioning
Promotion
People
Process
Competent people
In depth, with a proper management structure
No conflict of interest with shareholders
Results
Business
Size
Free float
Where to list?
Where are you doing business?
Where are there likely to be the most
shareholders for your company?
Liquidity
Specialization
Price multiples
Regulatory and reporting requirements
Diversification of investor base
Costs
US $ bn
1 Hong Kong 36.1
2 New York 31.4
3 Shenzhen 26.2
4 London
19.2
5 Shanghai 16.3
6 NASDAQ 10.7
7 Singapore 7.6
8 Spain
5.3
9 Brazil
4.4
10 Korea
3.6
US $ bn
1 NYSE Euronext (US)
11 796
2 NASDAQ
3 845
3 Tokyo Stock Exchange Group
3 325
4 London Stock Exchange Group 3 266
5 NYSE Euronext (Europe)
2 447
6 Shanghai Stock Exchange
2 357
7 Hong Kong Exchanges
2 258
8 TMX Group (Toronto)
1 912
9 BM&FBOVESPA (Brazil)
1 229
10 Australian Securities Exch
1 198
Source: http://www.world-exchanges.org/files/file/stats%20and
%20charts/2011%20WFE%20Market%20Highlights.pdf
10
Depository receipts
GDR global depository receipt
traded outside the USA
ADR American depository receipt traded inside the USA and
denominated in US$
Different levels issued, depending on whether they represent new shares (effectively an IPO) or existing
shares, and where the shares are traded, and the level of disclosure required.
Bank in USA
Issues certificate
denoting multiple
underlying shares to
Issues certificates to
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Investors in USA
Graph taken (with permission) from: Initial Public Offerings: Updated Statistics
Jay R. Ritter, 2013
http://bear.warrington.ufl.edu/ritter/ipodata.htm
Corporate Financial Strategy
12
Positioning
IPOs are commonly valued using market multiples, so price will be higher
if comparators are highly priced
Chose a time to float when markets are trading at high multiples
Choose an exchange that values your sector
Try to be allocated into a highly rated sector
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Investor relations
Aims of an investor relations
programme
Types of IR activity
14
15
16
Pre-float grooming
1224 weeks
Project planning
Appoint advisers
612 weeks
16 weeks
Admission week
Impact day
Announce flotation
Sub-underwriting completed
Shares start trading
Sourced from London Stock Exchange publications
17
18
Is it worth it?
Advantages of IPO
Marketability of shares
Source of cash
Increased profile company
and directors
Exit for institutions
Chance to make acquisitions
for paper
Management incentives
19
Disadvantages of IPO
Lose control of the co.
Hassle factor (incl. governance
regs)
Time consuming who runs the
business?
Unwelcome public
accountability
Short-term emphasis?
Susceptible to market
conditions
Threat of takeover
Cost
Shareholders need to be satisfied that the directors are treating them fairly,
and not buying the company at an under-value
Corporate Financial Strategy
20