Upload
katrina-armstrong
View
234
Download
2
Embed Size (px)
Citation preview
Chapter 14Fundamentals of
Corporate
Finance
Fifth Edition
Slides by
Matthew Will
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
Venture Capital, IPOs, and Seasoned Offerings
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 2
Topics Covered
Venture CapitalThe Initial Public OfferingThe UnderwritersGeneral Cash Offers by Public CompaniesThe Private Placement
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 3
Venture Capital
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 4
Venture Capital
Since success of a new firm is highly dependent on the effort of the managers, restrictions are placed on management by the venture capital company and funds are usually dispersed in stages, after a certain level of success is achieved.
Venture Capital
Money invested to finance a new firm
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 5
Venture Capital
1.0Value1.0Value
0.5equity originalYour 0.5assetsOther
0.5capital venturefromequity New0.5equity new fromCash
Equity and sLiabilitieAssets
($mil)Sheet Balance ValueMarket StageFirst
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 6
Venture Capital
Second Stage Market Value Balance Sheet ($mil)
Assets Liabilities and Equity
Cash from new equity 1.0 New equity from 2nd stage 1.0
Other assets 2.0 Equity from 1st stage 1.0
Your original equity 1.0
Value 3.0 Value 3.0
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 7
Initial Offering
Initial Public Offering (IPO) - First offering of stock to the general public.
Underwriter - Firm that buys an issue of securities from a company and resells it to the public.
Spread - Difference between public offer price and price paid by underwriter.
Prospectus - Formal summary that provides information on an issue of securities.
Underpricing - Issuing securities at an offering price set below the true value of the security.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 8
Initial Public Offering
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 9
Initial Public Offering
0
2
4
6
8
10
12
14
16
18
Tot
al D
irec
t C
osts
(%
of
issu
e)
Value of Issue ($mil)
IPOs
SEOs
Convertibles
Bonds
Expenses
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 10
The Underwriters
564,3$ers UnderwritAll
204America ofBank
286SachsGoldman
300UBS
335Bank Deutsche
362BostonCS/First
370Lynch Lerrill
370BrothersLehman
386MorganJP
414StanleyMorgan
$534Citigroup
issues) total of ($bil
2004 in rsUnderwrite U.S. Top
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 11
General Cash Offers
Seasoned Offering - Sale of securities by a firm that is already publicly traded.
General Cash Offer - Sale of securities open to all investors by an already public company.
Shelf Registration - A procedure that allows firms to file one registration statement for several issues of the same security.
Private Placement - Sale of securities to a limited number of investors without a public offering.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 12
Rights Issue
Rights Issue - Issue of securities offered only to current stockholders.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 13
Rights Issue
Rights Issue - Issue of securities offered only to current stockholders.
Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right?
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 14
Rights Issue
Current Market Value = 9 mil x $15 = $135 mil Total Shares = 9 mil + 3 mil = 12 mil Amount of new funds = 3 mil x $12 = $36 mil
New Share Price = (136 + 36) / 12 = $14.25/sh Value of a Right = 15 - 14.25 = $0.75
Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right?
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
14 - 15
Web Resources
www.ventureeconomics.com www.vnpartners.com www.v1.com www.nvca.org http://biz.yahoo.com/ipo www.ipodata.com www.ipohome.com www.hoovers.com
Click to access web sitesClick to access web sites
Internet connection requiredInternet connection required
http://cbsmarketwatch.com www.dealflow.com www.vfinance.com http://thomson.com/financial http://bear.cba.ufl.edu/ritter www.edgar-online.com