1. Small Business Finance…
Summer 2009
URG MBA Program
Chapters 12-14

2. Raising Capital from Public Sources
IPO
Secondary Offering
Examples?
Seasoned Offerings
Private placement

3. Deciding Factors Product Market Sales Profitability Growth Management
Financial Condition
Amount needed
Investor-basis
Value of Offering

4. Advantages of Public Offering
Accessibility to Capital
Liquidity and the rise of the company’s value
Improved ability to barrow money
Possible expansion and mergers
Gain large profits
Provide employee incentives
Improvement of level of management
Market awareness

5. Disadvantages Loss of Privacy Expectations of short term
Reduced operating flexibility
Restrictions on sales by managers
Legal exposure
Cost of IPO
Current expenses
Loss of founder’s control
Dividend policy

6. US Stock Market Stock Exchanges Implications???? Global Implications?
NY exchange
Over-the-counter trading
NASDAQ
Implications????
Global Implications?

7. IPO Team Underwriters Based on: Reputation & Experience
Commitment to the IPO
Distribution ability
Market-making and share-coverage capabilities
Provide additional services after IPO
Payment

8. IPO Team (continued) Underwriting Syndicate Legal Counsel
Made up of investment banks
Distributes the risk
Lead Manager controls the “book of orders” (listings of IPO’s)
Legal Counsel
Underwriter Compensation
Traditionally 20%

9. IPO Team (continued) The CPA The Cost of IPO
Prepares financial statements
Adjusts the registration statement to financial statements
Provides “comfort” to underwriters
Sort of like an appraiser provides comfort for a bank
The Cost of IPO 7%

10. IPO Process Signing the Letter of Intent
Quiet Period – 25 days-SEC publications
Organizational Meeting
Preliminary Registration Statement
Due Diligence – much reporting, honesty and scrutiny
Filing the Prelim. Reg. statement with SEC
Amended Registration Statement

11. IPO Process (continued)
Preliminary Prospectus (Red Herring)
Road Show
Due Diligence Meeting
Pricing, signing UW agreement, registration statement
Selling the shares to the public and closing
Trading, stabilization, exercise uw’s option (Green Shoe)

12. Underwriting Agreement
Firm Commitment offering
– Underwriter purchases securities
– uw commission
Best effort offering
– Underwriters sell shares at best offer
Registration Statement
Required
Two parts – Prospectus & description of the management and board of directors
Risk analysis and financial information

13. Liability under US Securities Law
Securities Act of 1933
Requires documentation or stocks are a liability
All material musts be accurate or as accurate as the company can make it
Registration process has been changed (1998)
Publications and analysis are ongoing (cancelled quiet period)
Prospectus filing is done electronically
Required to lay out terms of offering prior to investor purchase
Non-permissible free writing outside the prospectus
Public offerings have priority over private

14. After IPO Periodic reporting
Annual Report
Quarterly Report
Reporting of material events and stock exchange rules
Much like IRISA rules
Proxy Rules
Prohibition on Insider Trading
Martha Stewart!

15. Selling Exempt Shares Rule 144 Regulation S Regulation A
Restricts selling of shares for one year after purchase
Regulation S
If US communication is used to raise funds for a French company in France
Regulation A
Lowers costs and saves on financial statements
Purchases up to $5 million

16. Foreign Companies Raising Capital
International Disclosure rules
Special treatment from SEC = relief
Not required to file quarterly and annual reports
Don’t have to send annual reports to shareholders
Instead of ordinary shares, ADR are issued (American Depositary Receipts)

17. Mergers, Acquisitions, bankruptcies and Dissolution
Corporate Restructuring
Merger
Consolidation
Acquisition
Leveraged buy-out
Going private
Divestiture
Spin-off

18. Strategic Classifications
Horizontal Acquisitions
Same field – telephone, telecommunications
Sears-K-mart
Cyprus-Amex
Vertical Acquisitions
Different layer in the production process
Examples
Conglomerate Acquisitions
Target company is a totally different field than the purchaser

19. What Causes Mergers and Acquisitions?
Operational Synergy
Reducing development times
Change in market power
Improved Managerial Capabilities
Diversification
Tax advantages

20. Case Study – The Sale of Chromatis to Lucent
Pages 277 to end of chapter