A Guide to the Initial Public Offering Process
Katrina Ellis
(kle3@cornel.edu)
Roni Michaely
(rm34@cornell.edu)
and
Maureen O’Hara
(mo19@cornell.edu)
January 1999
*All Authors are from Cornell University, Johnson Graduate School of Management,
Cornell University Ithaca NY 14853. Michaely is also affiliated with Tel-Aviv University.
A Guide to the Initial Public Offering Process
A milestone for any company is the issuance of publicly traded stock. While the motivations for an initial public offering are straightforward, the mechanism for doing so is complex. In this paper, we outline the process by which companies are brought to market in an initial public offering. Our goals here are to delineate the specific steps
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The remaining portion of the gross spread (approximately 20%) is used to cover underwriting expenses (underwriter counsel, road show expenses, etc.). If anything remains after deducting all expenses, it is divided proportionately among the underwriter and syndicate members depending on the amount of securities each underwrote. One of the lead underwriter’s first-agenda items (usually before any significant expenses have been incurred) is to draft a letter of intent. Indeed, an important aspect of the letter of intent is to protect the underwriter against any uncovered expenses in the event the offer is withdrawn either during the due diligence and registration stage, or during the marketing stage. Thus, the letter of intent contains a clause requiring the company to reimburse the underwriter for any out-of-pocket expenses incurred during the process. Another important aspect of the letter is the gross spread or the underwriting discount. In most cases, the gross spread is 7% of the proceeds (see Chen and Ritter, 1998 for an excellent discussion of the uniform size of the gross spread). The letter also typically includes: a commitment by the underwriter to enter into a firm commitment agreement (or other underwriting agreements, as the case may be); an agreement by the company to cooperate in all due diligence efforts, and to make available all relevant
Mergers and Acquisitions (M&A) typically refers to a corporate fiscal and strategic set of strategies that deal with the purchasing, selling, and/or combining of different companies or pieces of companies that are able to help grow a company or experience rapid innovation with either creating another business entity or investing research and development from the ground up (Hennepopf, 2009). Modern organizations are so highly complex and competitive that the old paradigm improving efficiency and the bottom line improves, is no longer all it takes to be successful. Companies must continue to reinvent themselves, put Board egos aside and look at the marketplace, their expertise, and what they can do to retain market share. With technology changing so
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An initial public offering (IPO) is defined as the first offering of shares by a private company to the public. A share is one of a finite number of equal portions of the capital of a company that entitles the shareholder to a proportion of distributed, non-reinvested profits known as dividends, and to a portion of the value of the company in case of liquidation. Shares can be either voting or non-voting, meaning that the shareholder may have the right to vote on the board of directors and thus the corporate policy (Draho, 2004).
It is always a challenge to evaluate IPO and find the appropriate offer price. At this case too, many measures and methods play a vital role. Usually IPO
| Opportunities * To be the market leaders (no apparent market leader) * To have the highest market share * To make the most money in our factory as opposed to Company 2. * Technological advances * Training * Research and development
Multi Commodity Exchange of India Ltd (MCX), the India based electronic commodity futures exchange was incorporated in 2003. MCX provides online trading services, clearing and settlement operations for commodity futures across India.
The structure is best qualified for very large companies in an unpredictable and unstable environment, especially if the company’s goal is product innovation. (Gareth R. Jones, 2012)
New products and category innovation define and redefine the computer hardware and software industry and its landscape. Lately, we’ve seen even greater volatility than usual, and it has begun to affect the makeup of hardware and software companies themselves (Casey & Hagen, 2015). The structure some technological companies were built upon is becoming a thing of the past as more strict customers force companies to take upon mergers, acquisitions and/or split ups to achieve the desired financial performance.
“Today, the forces of competition, technology, and globalization have converged to spur innovation and to transform the way business is done in the securities industry.” (Arthur Levitt) Market structure is best defined as the organization and other characteristics of a market. How a business succeeds is based on the market, they choose to enter into. Another tool to analyze a company’s market structure, which includes the bargaining power of buyers, bargaining power of suppliers, threat of new competitors’ entering into the market, threat of substitutes and the intensity of competition. Some of the most important work in the development of economic theory is associated with the study market structure. From the perspective of a platform owner, when it owns part of the business on one side of the market, there are no straightforward answer as to whether having the rest of the business owned by another is advantageous or not. In my opinion a perfectly competition market is the best to open a business. I have outlined my thoughts and why a perfectly competitive market is the best market.
As defined by Investopedia, LLC (2016) ‘an initial public offering is the first sale of stock of a company to the public.’ When a company makes the decision to move forward with an initial public offering there are many roles that are involved and rules and regulations that must be reviewed to ensure risks are evaluated and limited. A decision to go public can have immense benefits in raising cash and providing liquidity. Having the proper roles evaluate pricing and ensure adherence to rules and regulations can make an initial public offering a positive step for companies.
The competitive structure of an industry can be described as either fragmented or consolidated. A consolidated industry consists of few, but large companies. They not only control the market – like that of an oligarchy, but have the capacity to determine industry prices. This is a contrast from a fragmented industry. Fragmented industries consist of numerous small- or medium-sized companies that do not have the power
With high costs in R&D and marketing, there exists a high entry barrier for this market. This environment makes for rivalry in an environment where only the strongest will survive. However, the government regulates the way companies strategically pair, and that is the common standard in this type of industry. This is done to keep the market competitive in the long run by using companies’ innovation to fuel more competition in the fight for the buyer[iii].
complex. In this paper, we outline the process by which companies are brought to market
The nature of large corporations has undergone enormous change in the past forty years, affecting both their scope and their structure. More recently, capital market pressures forced every corporation to reassess its portfolio of businesses, level of overhead, and the way it coordinates and controls its multibusiness activities. New forms of corporate organization, such as the LBO partnerships of the eighties, provoked a debate about the efficacy of corporate hierarchies. Perhaps surprisingly, even the smallest single business companies face many of the same issues that challenge their larger brethren. The entrepreneur starting out his or her new enterprise, for example, has to decide on boundaries to the set of activities the company will undertake. Should it manufacture or purchase its inputs? Should it market one or several products? Should it franchise the firm 's concept? These questions address the primary
| CONCEPTUAL DISCUSSION3.1. REVIEW OF LITERATURE3.2. CURRENT ISSUES3.3. ARTICLES ABOUT THE COMPANY3.4. NEW DEVELOPMENTS IN THE INDUSTRY