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Small Business Finance…

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Presentation on theme: "Small Business Finance…"— Presentation transcript:

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

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