What Type of Ipo Should Avaya Use - a Traditional Ipo or an Online Auction

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Course Number: FIN501

Module 1 Case Assignment
Upon deciding to go public, a company looks into preparing an initial public offering (IPO). There are two IPOs with which a company can utilize: a traditional IPO or the relatively new Auction-based IPO that was made popular by Google. Avaya is currently planning for IPO. “Avaya is a global leader in business communications systems. The company provides unified communications, contact centers, data solutions and related services directly and through its channel partners to leading businesses and organizations around the world” (Avaya.com, 2011). Avaya’s current plan of an IPO valued at approximately $1 billion (Klassen, 2011) needs to consider whether to go with a
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Once this process has finished, the investment bank is paid a percentage of the sale as commission as well as fees for the underwriting process. Due to the discount of the IPO from the estimate of the market value, traditional IPOs normally trade much higher than the initial price (Clinton, 2011). Being a long used and well known process, traditional IPOs allow for more choices of underwriters. Using an investment bank with experience in traditional IPOs allows for the road show to give the high profile investors a greater idea of the value of the company, and since the allocation of shares is done during this process they can avoid over-valuing the company. Nayantara Hensel writes that underwriters who do less than three IPOs a year will average a first day price increase of 10%. On the other hand Hensel also tells us that the average first day price increase for all traditional IPOs is 38%, meaning a loss in the potential capitol for the company. The investment bank underwriting for a traditional IPO normally gets a 7% underwriting fee of the amount earned or more, bringing the potential money lost to 45-50%.
Auction-Based IPO An auction-based IPO uses the Internet to open a company’s IPO stock for purchase to more potential investors. This process allows a company to spend less on their underwrite fees. The company

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