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Corporate Financial Strategy 4th edition Dr Ruth Bender. Chapter 15 Floating a company. Floating a company: contents. Positioning Investor relations List of people involved in an IPO Methods of going public Indicative timetable for a placing Illustrative contents of listing particulars - PowerPoint PPT Presentation
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Corporate Financial Strategy
Chapter 15
Floating a company
Corporate Financial Strategy4th edition
Dr Ruth Bender
Corporate Financial Strategy
Floating a company: contents
Learning objectives A cash-in float grows the company A cash-out float gives money to
exiting shareholders Reasons for floating a company An IPO is a marketing exercise Possible regulatory requirements for
listing Where to list? Worldwide exchanges, some
statistics Depository receipts Price: leave some money on the
table
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
2
Corporate Financial Strategy
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.
3
Corporate Financial Strategy
A cash-in float grows the company
4
Pre-float Post-float
Shareholders are A, B, C
Shareholders are A, B, C, D, E … and many others
Corporate Financial Strategy
A cash-out float gives money to exiting shareholders
5
Pre-float Post-float
Shareholders are A, B, C, D, E
Shareholders are A, D and many
others
Corporate Financial Strategy
Reasons for floating a company
6
Shares to act as currency in acquisitions
Diversification for shareholders
Exit for investors (cash-out)
Better management
incentives
Diversification of shareholders
Fundraising (cash-in)
Future financial flexibility Desire for prestige Opportunistic
Corporate Financial Strategy
An IPO is a marketing exercise
7
ProductAre these shares attractive to the market? What does the market want? Do we need to develop the product (company, shares?) further?
Place Which stock exchange(s)? (Or should we float at all?)
Price How should we set the price of the shares?
Positioning Which sector? Which competitors? When?
Promotion Road show and PR as well as the prospectus
People Who will do the road show? Who will be on the board?
Process Good project-management skills are required to steer the company through the detailed regulatory process
Corporate Financial Strategy
Possible regulatory requirements for a listing
8
Management Competent peopleIn depth, with a proper management structureNo conflict of interest with shareholders
Results Track record of business for more than n yearsAudited accounts with unqualified audit reportsInclude major acquisitionsAcceptable accounting policies
Business There is a proper business with a reasonable outlookGood operating structuresGood capital structure
Size Lower size limits will apply to market capitalization
Free float At least a minimum level of shares available to the public
Corporate Financial Strategy
Where to list?
9
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
Corporate Financial Strategy
Worldwide exchanges, some statistics
10
IPO FUNDRAISING IN MAJOR STOCK EXCHANGES IN 2011
US $ bn1 Hong Kong 36.12 New York 31.43 Shenzhen 26.24 London 19.25 Shanghai 16.36 NASDAQ 10.77 Singapore 7.68 Spain 5.39 Brazil 4.410 Korea 3.6Includes REITs. Source: Dealogic data from http://www.hkex.com.hk/eng/newsconsul/newsltr/2012/Documents/2012-01-02-E.pdf
MARKET CAPITALIZATIONS OF MAJOR STOCK EXCHANGES AT END 2011
US $ bn1 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
Corporate Financial Strategy
Depository receipts
11
GDR – global depository receipt – traded outside the USAADR – 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.
Company outside USA Bank in USA Investors in USA
Issues certificate denoting multiple
underlying shares to
Issues certificates to
Corporate Financial Strategy
Price: leave some money on the table
12
Graph taken (with permission) from: Initial Public Offerings: Updated StatisticsJay R. Ritter, 2013http://bear.warrington.ufl.edu/ritter/ipodata.htm
Corporate Financial Strategy
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 multiplesChoose an exchange that values your sector Try to be allocated into a highly rated sector
13
Corporate Financial Strategy
Investor relations
14
Aims of an investor relations programme
A fair market value for the shares Liquidity in the market for the shares Easier access to capital in the future Investors who will be supportive
Main external audiences for whom IR is intended(plus the internal audiences)
Institutional investors Retail investors Financial media Analysts: buy-side and sell-side The adviser community Other stakeholders – increasingly important, esp. re
CSR
Types of IR activity(all governed by various parts of the law)
Publication of prelims, annual and half-yearly and quarterly results
AGM Regular meetings with key shareholders and
analysts Conference calls, webcasts News releases Crisis management Media briefings, Roadshows Website, etc. …
Corporate Financial Strategy
List of people involved in an IPO
1. Company and its directors2. Sponsor3. Broker / bookrunner4. Underwriters5. Reporting accountants6. Lawyers 7. Financial public relations8. Registrar9. Receiving bankers10. Security printers
15
Corporate Financial Strategy
Methods of going public
16
Corporate Financial Strategy
Indicative timetable for a placing
17
Up to 3 years pre-float Pre-float grooming
12–24 weeks Project planningAppoint advisers
6–12 weeks Draft documents (incl. PR)Initial pricing reviewFirst drafting meetings
1–6 weeks More drafting meetingsDue diligence and review forecastsSubmit documents to UKLA
Admission week Document approvals from UKLAPricing meetingFinal prospectus is printed
Impact day Announce flotationSub-underwriting completedShares start trading
Sourced from London Stock Exchange publications
Corporate Financial Strategy
Illustrative contents of listing particulars
18
● Details of the shares to be issued, and full details of the share capital of the company, including the rights of different types of share.
● Information about the business of the company, its performance, risk factors affecting it, and the markets in which it trades.
● Information about the directors and key personnel, and on governance policies and procedures.
● Confirmation that the company will have sufficient funds in the foreseeable future.● Information about any unusual contracts entered into by the company of which
shareholders should be aware.
● Details of any ongoing or potential litigation.● An indication of the company’s dividend policy after flotation.● Accountants’ report on previous years’ financial results, and other relevant financial
information.
● Anything else that might be of interest or relevance to the potential shareholders.
Corporate Financial Strategy
Is it worth it?
19
Advantages of IPOMarketability of sharesSource of cashIncreased profile – company
and directorsExit for institutionsChance to make acquisitions
for paperManagement incentives
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
Corporate Financial Strategy
Reasons for delisting
20
Directors feel the market is under-valuing the company
Little liquidity No need to raise
more funds Fear of hostile
takeover Wish to restructure
out of the public eye
Shareholders need to be satisfied that the directors are treating them fairly, and not buying the company at an under-value
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