The document provides information about the initial public offering (IPO) process for a company. It defines an IPO as a company's first sale of stock to the public. It then discusses the reasons why companies pursue IPOs, including raising new capital, gaining future access to capital, and facilitating mergers and acquisitions. The document outlines the typical IPO process, including selecting an underwriter, registering with regulatory agencies, printing a prospectus, conducting a roadshow to investors, pricing the securities, and selling the securities. It provides examples of leading underwriters and discusses potential disadvantages of pursuing an IPO.

1. THE INITIAL PUBLIC
OFFERING (IPO)
By,
GROUP NO.6

2. ROLL NO. NAME
120
Madhuri s.Dolas
94
Ruchita Gurav
136 Shantanu Shahasane
118 Mandar Desai
107 Mohit Singh
[Team Leader]
2

3. Initial Public Offering (IPO)
 Definition: A company’s first equity issue
made available to the public.
 This issue occurs when a privately held
company decides to go public
 Also called an “unseasoned new issue.”

4. Why do companies go public?
 New capital
 Almost all companies go public primarily because
they need money to expand the business
 Future capital
 Once public, firms have greater and easier access
to capital in the future
 Mergers and acquisitions
 Its easier for other companies to notice and
evaluate a public firm for potential synergies
 IPOs are often used to finance acquisitions

5. Is it a good time to do an IPO?
 There are clear “windows of opportunity” that
open and close for IPO issuers
 Determinants of suitability:
The general stock market condition
The industry market condition
The frequency and size of all IPO’s in the
financial cycle

6. Outline of the IPO process:
1. Select an underwriter
2. Register IPO with the SEC/SEBI
3. Print prospectus
4. Present roadshow
5. Price the securities
6. Sell the securities

7. 1. Select an underwriter
 An underwriter is an investment firm that acts
as an intermediary between a company selling
securities and the investing public
 The underwriter is the principal player in the
IPO
 Typically, the underwriter buys the securities
for less than the offering price and accepts the
risk of not being able to sell them

8. Types of underwriting
 Firm commitment underwriting:
The underwriter buys the entire issue,
assuming full financial responsibility for any
unsold shares
Most prevalent type of underwriting in the U.
S.
 Best efforts underwriting:
The underwriter sells as much of the issue as
possible, but can return any unsold shares to
the issuer without financial responsibility

9. Leading IPO Underwriters
1. Goldman Sachs
2. Morgan Stanley
3. Merrill Lynch

10. Intermediaries and their Roles
LEAD MANAGER
DOMESTIC &
INTERNATIONAL
LEGAL
COUNSAL
AUDITORS REGISTRARS

11. 2. Register IPO with SEC
 The firm must prepare a registration statement
and file it with the SEC[US] /SEBI[INDIA]
 The registration statement discloses all material
information concerning the corporation making
a public offering

12. 3. Print prospectus
 The prospectus is a legal document describing
details of the issuing corporation and the
proposed offering to potential investors
 Contains much of the information in the
registration statement
 The preliminary prospectus is sometimes called
a “red herring”

13. 4. Present road-show
 The road-show is presented to institutional
investors around the country
 The road-show allows firms to raise interest in
the company and thus the price
 Allows the firm and its underwriters to gather
information from potential purchasers

14. 5. Price the securities
 How much to charge for giving away a part of
the firm is very important to the issuers
 The securities are priced based on the value of
the company and expected demand for the
securities
 Examples of valuation methods:
Net Present Value
Earnings/Price ratios

15. 6. Sell the securities
 A full-fledged selling effort gets under way on
the effective date of the registration statement
 A final prospectus must accompany the
delivery of securities

16. Average IPO returns over last 5 years
-50%
0%
50%
100%
150%
200%
250%
300%
2009 2010 2011 2012 2013
Series 1
Series 1

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22. The Initial Public Offering (IPO) refers to the first sale of these shares of
stock.
Facebook, Inc. had offered 180,000,000 shares of its Class A common
stock and the selling stockholders
are offering 157,415,352 shares of Class A common stock.

24. What Is an IPO?
The usual customers that purchase IPO stocks are institutional investors, other banks
and firms, who buy large blocks of stocks. Those institutions, in turn, sell the shares to
individuals.

25. Let’s look at an IPO scenario…
Facebook is valued at $104 billion.

26. What Is an IPO?
Facebook had raised $16billion dollars in capital investment. So, the investment
bank gets a 10% stake in Facebook.

27. The investment bank, working with Facebook, decided that an
IPO stock price of $28 to $35 per share would be an ideal starting
price. And in the market 337,415,352 Shares issued in IPO.

28. Facebook’s IPO
Looking at the IPO chart shown previously, you’ll see that stock prices for IPOs
have a characteristic shape.

30. DOES IPO AFFECT THE COMPANY’S ABILITY TO INNOVATE
 Inventive People Cash Out The primary goal of an
innovator is to have a successful exit and thereby cash
out. A successful IPO is one lucrative form of exit. The
result is that the company's most innovative persons
leave the company.
 Inventive People Keep Inventing, Elsewhere Here,
there is also a departure of the company's most
talented innovative types, but the reasons are not
simply because of a big cash payday. Rather,
innovative types begin to chafe at the more bottom-line
driven focus of the company, especially where
innovation becomes more incremental than fundamental.

31.  In the words of Bernstein, “Imagine that you have a
brilliant idea.” “It’s more attractive to explore that in a
private setting where you are the owner, than in a
public firm, where whatever ownership you had is
now heavily diluted. They do seem to remain
entrepreneurial,” he said — just not at the company
their innovations helped build.
 Management Clamps Down on Risky, Creative Work
The emphasis is on change to the culture of risk-taking
that spawned the innovative idea that propelled the
company forward.

32.  Why Build Innovation When You Can Buy It?
Companies awash in post-IPO cash seem to have
increasing preference to acquire companies rather than
to continue to develop and innovate in-house. Indeed,
Twitter, even pre-IPO, acquired 10 companies in 2012
alone. [I must confess I find this explanation a bit odd,
since presumably acquired companies will also yield
patents. In a world where collaborative innovation is all
the rage, using IPO-generated funds to overcome the
limitations of "non-invented here" seems a potentially
good result.]

33. A few observations are in order here:
 The report focuses on post-IPO activity but, over the past
few years, most innovative companies exit by acquisition
and the like rather than by going public. Indeed, there is
more and more discussion that the venture capital industry
is in dire straits. If we want to understand the factors that
affect innovation, it seems that a complementary study
focusing on other forms of exit is needed.
 Given this, perhaps the "really next big thing" in this kind
of analysis is to develop robust empirical measures that
can meaningfully taken into account the variegated
countenance of innovation in today's hi-tech world.

34. There is a danger in equating innovation
with patent activity. While I understand
that patent data are convenient for
conducting empirical research of this kind, in
so doing, the analysis may well miss
substantial non-patent innovation, both pre
and post-IPO. As such, in a social media-
mad tech world, patents may be a
particularly dicey proxy for measuring
innovation.

35. Disadvantages of the IPO
 Expensive
A typical firm may spend about 15-25% of
the money raised on direct expenses
 Reporting responsibilities
Public companies must continuously file
reports with the SEC/SEBI and the stock
exchange they list on
 Loss of control
Ownership is transferred to outsiders who
can take control and even fire the
entrepreneur

36. THE END…
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