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ACF W7: IPO and SEO - Coggle Diagram

- - - - primary issue
      - secondary (seasoned) issue
  - - - issue of minimum amount and number of shares
      - at least a certain number of shareholders
  - - - raise external capital to fund growth/expansion
      - convert business wealth into cash
      - additional payment form (shares) for executive compensation or in corporate transactions (acquisitions)
        
        attract talents and reduce retention cost
    - - enhance corp image and marketability
      - enhance managerial decision-making and performance incentives
        
        allow managers to promote the company -> drive stock price
      - encourage external monitoring from shareholders, investment analysts, regulators (ASIC, ASX)
        
        create public profile for the company, enhancing reputation in the market
    - - remuneration incentives
      - profile of working for a listed company
  - - - depend on
        
        overall strategy
        
        investment funding requirements
        
        perceived attractiveness/risk of their business
        
        other financing capacity (instead of stocks)
        
        current market conditions
        
        whether IPO right now or later state
    - - investment banks or stockbroking firms
        
        ex: Citigroup, Goldman Sachs, Credit Suisse
        
        advise on issue planning
        
        determining pricing
        
        issue method
        
        suitable timing
        
        involvement in
        
        issue underwriting
        
        marketing the issue
        
        roadshow
        
        stockbrokers
        
        indi clients
        
        acting as issue manager
    - - underwriting
        
        when a company contracts another party to take on some/all risks of issue undersubcription, in return for underwriting fee
        
        2 types
        
        full (firm commitment) underwriting
        
        buy all securities from issuing firm then resell them in primary market?
        
        risk: keep large parcel of unsold shares
        
        higher risk, higher commision
        
        best efforts underwriting
        
        underwriter make best effort to sell and receive commission on the amount sold
  - - - set the price
        
        based on
        
        amount of capital to raise
        
        demand of investors
        
        if price too high
        
        hard to attract investors
        
        raise less capital than desired
        
        if price too low
        
        raise much less capital than possible
        
        underpricing
        
        leaving money on the table
        
        tradeoff
  - - - a set price is specified and potential investors decide if they are willing to subsribe for shares at that price -> main issue method
    - - the advisor obtain info about indicative demand and price levels during marketing of offer
        
        analyze the aggregate demand for the issue from the submitted bids
        
        using weighted average for the final price
      - types of auction mechanism
        
        discriminatory auctions
        
        bid prices are paid
        
        uniform auctions
        
        all successful bidders pay lowest successful price
  - - - sixe and background of issuing company
    - - underwriter commission
      - adviser's fees for
        
        deal structuring
        
        valuation
        
        prospectus document preparation
      - legal representative and accountant fees
      - administrative and marketing costs
        
        printing, postage, adveristing
      - stock exchange listing fee
        
        proportional to issue size
      - indirect costs
        
        diversion of mana time spend on issue
      - issue underpicing (see Part 2)
- - - - short-fall subscriptions (shares not soldout) sends bad signal about company's quality and future
    - - cascade effect
    - - informed investors crowd-out uninformed investrs in highly-underpriced offers
      - some degree of underpricing is required to attract capital from uninformed investors
    - - underwriter commission is proportional to aggregate value -> incentive to set higher price
      - however if unsuccessful issue -> no commission
      - also agency has standby commitment to buy the short fall => incentive for low price
  - - - higher risk greater underpricing
    - - longer existence -> more info
      - better performance -> better quality -> lower underpricing
    - - ex: advisor, underwriter, investigative accountant
      - more reputation -> lower underpricing
    - - larger size -> lower underpricing
    - - mining and IT IPOs more underpriced than industrial firm IPOs
    - - ie. level of ownership retained by founders
      - increase/reduce degree of underpricing
    - - higher/lower underpricing in bull/bear market
- - - - additional shares offered for sale at discount (to current traded price) in fixed proportion to their current shareholding
      - existing shareholders
      - require prospectus document offered to all existing shareholders
    - - shares offered in large parcels at a discount (to current traded price)
      - larger discount than offered to exisiting shareholders
      - institutional investors