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    IPO Process Overview IPO Process Overview Presentation Transcript

    • May 19, 2001 Soup to Nuts Seminar Series
      • Presenter: Brian Kasser, Principal, Software Investment Banking Practice
      • Founded in Q4 1998 by Thom Weisel, former CEO of Montgomery Securities for 27 years, and officially opened doors for business February 1999
          • Capital raised: 1999: $16B 2000: $28B
          • $ in M&A advisory transactions: 1999: $ 7B 2000: $ 76B
          • Annual revenue: 1999: $186MM 2000: $492MM
          • 810 employees at 5/19/01
          • Offices in San Francisco, Menlo Park, New York, Boston and London
      • Focused exclusively on investment themes transforming the economy & targeting the high quality growth companies
      • Merchant banking approach combining research, underwriting, M&A advisory and private equity investment activities
      • Combines deep domain expertise with bulge bracket execution capabilities
      Thomas Weisel Partners is the Leading Investment Bank Exclusively Focused on Emerging Growth
    • Table of Contents
      • IPO Process Overview
      • IPO Market Overview
      • Overview of Thomas Weisel Partners
    • IPO Process Overview
    • IPO Process Overview
      • Select the Team
      • Draft a Document / Conduct Due Diligence (Bankers & Research)
      • File Registration Statement with the SEC
      • Marketing (Roadshow)
      • Pricing / Trading
      • Quarterly revenue run rate greater than $10 million and attractive sequential growth
      • Visibility (2 quarters out)
      • Profitability (≤ 2 quarters after filing)
      • Market position (first mover advantage – market leaders)
      • Stable customers (Global 1000)
      • Solution sold at sizable average selling prices (“ASP”)
      • Proven business model
      • Strong strategic channel partners
      • Reasonable mix between license / service revenue
      • Reasonable mix between direct / indirect sales channels
      • Strong board representation
      • Well-recognized investors
      • Management (seasoned / experienced)
      Characteristics of Companies that are Ready for an IPO Today Institutional Investors are evaluating potential technology IPOs based on the following metrics / attributes:
    • Identifying and Selecting Investment Banks for an IPO
      • Full-Service Investment Bank
        • Strong Research Capability with Domain Expertise and “Active” Approach Names (Publishing) Dialogue with both Sales Force and Institutions
        • Focused and Active Sales and Trading within the Company’s Sector
        • Experienced Investment Banking Professionals with Sector Wide Knowledge and Advisory Capabilities
      • Reputation and Strength of Firm
      • “ Fit” and Comfort with the Firm
    • Landscape of the Leading Investment Banks (Unbiased) Strong Execution Limited Execution Emerging Growth Focus Broad/ Diluted Focus Goldman Sachs Morgan Stanley Merrill Lynch CS First Boston DLJ Salomon Smith Barney First Union SG Cowen Deutsche Bank Alex. Brown Banc of America Fleet Robertson J.P. Morgan Chase Piper Jaffray Wit Soundview RBC DRW UBS William Blair
    • Timing, Participants and Tasks of the IPO Process Core Tasks Key Participants Time Frame Drafting / Due Diligence SEC Review Period Marketing / (Roadshow) Pricing After Market Support
    • Proceeds of the Offering Gross Proceeds: The total offering size. Shares Offered * Expected Price Gross Spread: The percentage of the gross proceeds paid to underwriters to cover management fees,selling commissions and underwriting concessions. Almost always 7% on IPO’s; less on follow-ons (usually negotiable) Offering Expenses: Expenses of the offering borne by the company. Typically accounting and legal fees, filing fees and printing costs. Net Proceeds: Gross Proceeds - Gross Spread - Offering Expenses Example: Gross Proceeds -- 5.0 million shares issued X $10.00/share expected price $50.0 million Less: Gross Spread @ 7% --$10.00 X .07 = $0.70 X 5.0 million shares $ 3.5 million Less: Offering Expenses ---$700,000 $ .7 million Equals: Net Proceeds $45.8 million
    • Mechanics of an IPO Valuation
      • Some Form of Public Comparable Company Analysis: Price-to-Revenue, Price-to-Earnings, Combined with a Discounted Cash Flow
      • Pricing an “Art” Not a “Science” (Within Accepted Metrics)
        • Aftermarket Demand and Performance
        • Majority of Shares Still Held by Founders and Existing Investors
      • Market Ultimately Prices the Deal Based Upon Demand Characteristics
      • Post Offering, Valuation Fluctuates Based on:
        • Operational Progress and Announcements
        • Meeting “Street” Expectations Quarter After Quarter
        • Research Coverage and Visibility
        • Trading Volume and Liquidity
    • Variables of an IPO Valuation
      • Trading Multiple: Based on comparable analysis, the multiple at which the investment banks believe a company will trade in the public markets.
      • IPO Discount: The amount by which the investment bank discount the trading multiple to calculate the IPO Multiple. Typically, IPOs are priced such that the stock price is expected to appreciate 15%.
      • IPO Multiple: The multiple at which a company is taken public. Trading Multiple/ (1 + IPO Discount)
      • Post Money Equity Value: The equity value of the company at an assumed IPO price. Post Deal Shares Outstanding * IPO Price
      • Pre-Money Equity Value: Post-Money Equity Value - Offering Size
      • Primary Shares: New Shares sold by the company
      • Secondary Shares: Existing Shares Sold by Insiders (Typically Not Applicable for an IPO)
    • Typical Stock Splits Prior to an IPO
      • Prior to going public, companies will usually effect a stock split or reverse stock split.
      • This is done to manipulate the price range of the common stock. To get it into a reasonable “filing range” (Typically low to mid teens)
      • A stock split does not change the company’s capitalization just the number of shares outstanding and consequently the earnings per share and per share price.
    • IPO Market Overview
    • Overview of the Current Economy
      • The slowing U.S. economy has resulted in a reduction of capital spending by enterprises, especially on IT equipment and software
      • The reduction in IT equipment and software spending has resulted in weak financial performance for technology companies and significant stock price declines
      • The combination of a slowing U.S. economy and significant valuation adjustments has all but dried up the IPO market for early-stage emerging growth companies
      • Investors have returned to historical less aggressive metrics to evaluate public technology companies and initial public offerings
          • Companies architected for the investor environment of 1999 and 2000 must be restructured
          • No more “top line growth at any cost” mentality
          • Earnings matter!!!
    • Return to Historical Valuations
    • IPO Market Overview Monthly Initial Public Offerings: 1996 to Present $ Amount Raised ($ in Billions) Number of Transactions
    • IPO Market Overview Initial Public Offerings % Priced Below Filing Range % Priced Within Filing Range (a) % Priced Above Filing Range Pricing Trends in IPOs The Big IPO Party…... …… ..And The Morning Hangover
    • IPO Market Overview After Market Performance of IPOs that priced in 2001, 2000, and 1999
    • Overview of Thomas Weisel Partners
    • Overview of Thomas Weisel Partners
        • Focused exclusively on investment themes transforming the economy
        • Target selected growth industries and highest quality companies
        • Merchant banking approach combining traditional institutional brokerage with significant private equity investment activities
        • Comprehensive banking services for growth companies including equity underwriting, convertible debt, private placements, M&A advisory and private client services
        • Founded in Q4 1998, officially opened doors for business February 1999
        • 810 employees, expected to increase to over 900 by end of 2001
        • $40.4 billion in equity capital raised
        • $85.7 billion in M&A advisory transaction volume announced/completed
        • Thom Weisel, CEO of Montgomery Securities for 27 years
        • At Montgomery, Thom and other founders supervised an organization that in the 1990s raised $100 billion in 988 equity offerings and executed 385 M&A transactions representing $100 billion in value
        • Other senior executives with 20+ years experience at Merrill Lynch, Credit Suisse First Boston, Salomon Smith Barney, Alex. Brown and others
        • San Francisco: Institutional Brokerage, Research, Corporate Finance, Private Client Dept. & Private Equity
        • New York: Research, Private Client Dept. & Corporate Finance
        • Boston: Institutional Brokerage & Corporate Finance
        • London: Institutional Brokerage & Corporate Finance
      Strategic Positioning Business Momentum Management Team Global Reach Thomas Weisel Partners is the Leading Investment Bank Exclusively Focused on Emerging Growth
    • Overview of Thomas Weisel Partners Thomas Weisel Partners Status Report
        • IPOs and Follow-ons Completed
          • 156 transactions
          • $40.4 billion raised
          • 18 lead managed offerings
        • IPOs and Follow-ons Pending
          • 14 transactions filed/announced
          • $1.4 billion filed/announced
          • 2 lead-managed offerings
        • Mergers and Acquisitions
          • 68 transactions completed/announced
          • 42 transactions in backlog
          • $85.5 billion in completed transactions
          • $178 million announced
        • Private Placements
          • 25 transactions completed
          • 15 transactions in process
          • $1.4 billion raised
        • Convertibles
          • 8 transactions completed
          • $3.1 billion raised
      Dollars ($mm) As of April 9, 2001 IPOs and follow-ons completed include over-allotment and convertibles do not include over-allotment
    • Company Life Span Stage of Development M&A Advisory Research, Sales & Trading Capital Raisings IPO Private Client Services Private Placements Late Stage Private Equity (TWCP) Venture Capital (TWVP) Private Public Overview of Thomas Weisel Partners Comprehensive Services Across the Entire Lifecycle of Today’s Emerging Growth Companies
    • Overview of Thomas Weisel Partners
        • 20+ years experience in investment banking
        • Completed over 156 financings in Thomas Weisel Partners short history
        • Focused exclusively on emerging growth companies
        • Raised over $40 billion in equity financing since inception
        • Deep relationships with strategic and institutional investors
        • Understanding of the strategic investor landscape
        • Highly integrated with M&A and Equity Research teams
        • Experience in managing and completing IPOs and secondary offerings
        • 18 lead managed offerings completed
        • Deliver size and valuation objectives for clients
      Thomas Weisel Partners Equity Underwriting Expertise Experience Dedicated & Integrated Team Track Record of Success
    • Overview of Thomas Weisel Partners Thomas Weisel Partners Equity Expertise
    • Overview of Thomas Weisel Partners
        • Average of 15 years experience in mergers and acquisitions advisory
        • Blend of bulge bracket, boutique and growth-oriented M&A experience
        • Led by two of the industry’s most respected M&A professionals
          • Mark Shafir -- former Head of Global Technology Investment Banking at Merrill Lynch
              • -- advised Cisco on more than 10 transactions
              • -- advised SDL on its $41 billion sale to JDS Uniphase
          • Bob Kitts -- former Managing Director in the M&A Group at Morgan Stanley
        • Deep understanding of the growth sector M&A landscape
        • Highly integrated with Investment Banking and Equity Research teams
        • Experience in managing and completing M&A transactions
        • 68 transactions completed/announced
      Thomas Weisel Partners M&A Advisory Expertise Experience Dedicated & Integrated Team Track Record of Success
    • M&A Environment & TWP Capabilities M&A All Sectors M&A Technology Sectors (1) (1) Technology Includes SDC Tech Industries (e.g. Biotechnology, Computer Equipment, Communications, Electronics, Robotics, etc… Transactions counted in the period in which they are announced. Excludes spinoffs, buybacks & withdrawn deals Transactions with undisclosed values are included in the deal count but do not contribute to the Txn Value Total Source: Securities Data Corp. 4/4/01 - Transaction Values are equivalent to SDC’s rank values. Strategic US Advisory Rankings: 2001 YTD Ranked by Dollar Volume
    • Overview of Thomas Weisel Partners Thomas Weisel Partners Private Placement Expertise
        • 17 years experience in dedicated private equity effort
        • Completed over 100 financings at Montgomery Securities during the 1990s
        • Focus on a broad set of growth company industry groups
        • Raised over $3 billion in private equity in the 1990s
        • Private equity team focused solely on the private equity placement market
        • Deep relationships with private equity investors
        • Understanding of the strategic investor landscape
        • Highly integrated with Investment Banking, M&A and Equity Research teams
        • Experience in managing and completing private placements
        • Completion in 8 to 14 weeks
        • Deliver size and valuation objectives for clients
        • Realize liquidity objectives through public offering or sale within 24 months
      Experience Dedicated & Integrated Team Track Record of Success
    • Overview of Thomas Weisel Partners Thomas Weisel Partners Private Placement Transactions
    • Overview of Thomas Weisel Partners Thomas Weisel Partners Private Placement Transactions
    • Overview of Thomas Weisel Partners Thomas Weisel Partners Private Equity Funds
    • Overview of Thomas Weisel Partners Over $700 million committed to 28 leading companies on the cutting edge of change in software and internet infrastructure, technology services, media & communications, communications equipment and healthcare technology. Thomas Weisel Capital Partners, L.P. $1,311,503,386 Technology Services Media & Communications Software & Internet Infrastructure Healthcare Technology
    • Overview of Thomas Weisel Partners Private Client Services Corporate Cash Management Corporate Services Investment Management Consulting Tax & Estate Planning Brokerage Services Management of cash flow and other short-term capital needs Identification of tax efficient investment strategies Comprehensive asset allocation and diversification Brokerage services provided to “friends” of the deal; execution of restricted security transactions Competitive execution and agent approach to fixed income Thomas Weisel Partners Private Client Services strives to preserve the capital base of clients through wealth diversification and asset allocation