corporate financial strategy chapter 15 floating a company corporate financial strategy 4th edition...

Corporate Financial Strategy

Chapter 15

Floating a company

Corporate Financial Strategy4th edition

Dr Ruth Bender


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


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


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


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


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


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


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


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


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 3.6

Includes 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


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


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


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


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. …


List of people involved in an IPO

1. Company and its directors

2. Sponsor

3. Broker / bookrunner

4. Underwriters

5. Reporting accountants

6. Lawyers

7. Financial public relations

8. Registrar

9. Receiving bankers

10. Security printers

15


Methods of going public

16


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


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.


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


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

corporate financial strategy chapter 15 floating a company corporate financial strategy 4th edition...

Documents

shareholders reasons

floatpostfloat shareholders

product company

c shareholders

listed company

e shareholders

shareholders exit

public slide