Description
Success and failure factors of IPO, phases of IPO, IPO investment strategies,
IPO
• Success Factors: What makes a good IPO
• • • • • A significant opportunity (Amazon) Fast mover, category leader Superior service Reasonable size of product market Relevant background of management
• Success Factors: What makes a good IPO/2
• • • • • Barriers to entry must be high Focussed company Sustainable growth for high valuation Strong brand identity Low operating costs to compete
• Flop Predictor (Avoiding a Bad IPO)
• • • • • No entry barriers Financial Chicanery History repeats itself Overly high expectations Insiders bailing out
• Flop Predictor (Avoiding a Bad IPO)
• • • • • Customers overwhelmed Abandoning a business that made it great The emperor has no clothes Prospectus makes you wonder… Small company with huge capital spending
• Flop Predictor (Avoiding a Bad IPO)/2
• If it doesn’t work on land… • Trying to wed a land based industry to net
• Five Phases of a Bad IPO
• • • • • Exuberance of IPO, Money to burn When Reality hits Frenzied efforts to stave off disaster Endgame, top executives bail out Punishment of the innocent
• The forces of financial Darwinian-ism always prevail
• IPO Investment Strategies
• • • • • Beware of seduction of internet metrics Know the flavour of the day Buy the leaders Buy when nobody else will Don’t be afraid to admit a mistake
• IPO Investment Strategies/2
• • • • • Don’t believe the hype Be sensitive to the overall market environ Understand the stage of development of co Suitability of business model to net Biotechnology phenomenon
• Management Helps or Hurts an IPO
• • • • • Who benefits from the IPO Other benefits and fees / perks Management experience and longevity Management track record Independence from controlling shareholders
• Management Helps or Hurts an IPO/2
• • • • • High share ownership by management Reasonable compensation Skilled independent directors Full time, independent executives Shareholder-friendly outlook
• After-market: 4 Scenarios
• • • • Hot IPO. Wait for 3rd day after listing Pricey. Does not live up to pre-IPO hype Last minute bargain. Unlikely to trade well Deals that don’t trade well
• Trading Ideas for IPO allotted shares
• Flip. Price may taper off permanently • Sell before lock-in shares get saleable • Margin calls (in bear markets)
• Mining the Prospectus
• • • • • Front Cover Prospectus Summary Offering Summary Financial Data Risk Factors
• Mining the Prospectus/2
• • • • • • Use of Proceeds Management Discussion & Analysis Cash Flows Business Management & Control Certain Transactions
• Risk Factors - details:
• • • • • • Accumulated Deficits, Ongoing Losses Customer Concentrations Lengthy Sales Cycle Product Acceptance Internal Control Problems Rapid Growth - constraints
• Risk Factors - details:/2
• • • • • • Sole source Contractors Geographical Concentrations Insider Transactions Litigation Fluctuating Results Key Executives
• • • • • • • •
Terminology: After-market Beauty Contest Breaking Issue Price Carve-out Class Action Suit Green Shoe Option Red Herring Prospectus
• • • • • • •
Terminology:/2 Flipping GARP Green Shoe Option Red Herring Prospectus Road Show Syndicate
• Going Public:
• • • • Setting the Stage Board of Directors’ Meeting Process of Going Public The Morning After
• Corporate Finance Literature/1 • Stabilization • Support price a reward for some (Benveniste, Busaba, Williams - BBW, 1996) • Compensates uninformed investors for ‘Winner’s Curse’ (Chowdhry, Singh - CN, 1996)
• Corporate Finance Literature/2 • (T Jenkins & A Ljungqvist, 2001) • Stylized Facts
• Under-pricing Syndrome • Prices (taper off) • ‘Hot Issue’ Period
• Corporate Finance Literature/3
• Investor Behaviour: Optimism and Pessimism. Impact on After market. (Cornelli, Goldreich & Ljungqvist, 2006) • Actions by Underwriters (K Lewellen, 2006)
Thank You
doc_501526553.ppt
Success and failure factors of IPO, phases of IPO, IPO investment strategies,
IPO
• Success Factors: What makes a good IPO
• • • • • A significant opportunity (Amazon) Fast mover, category leader Superior service Reasonable size of product market Relevant background of management
• Success Factors: What makes a good IPO/2
• • • • • Barriers to entry must be high Focussed company Sustainable growth for high valuation Strong brand identity Low operating costs to compete
• Flop Predictor (Avoiding a Bad IPO)
• • • • • No entry barriers Financial Chicanery History repeats itself Overly high expectations Insiders bailing out
• Flop Predictor (Avoiding a Bad IPO)
• • • • • Customers overwhelmed Abandoning a business that made it great The emperor has no clothes Prospectus makes you wonder… Small company with huge capital spending
• Flop Predictor (Avoiding a Bad IPO)/2
• If it doesn’t work on land… • Trying to wed a land based industry to net
• Five Phases of a Bad IPO
• • • • • Exuberance of IPO, Money to burn When Reality hits Frenzied efforts to stave off disaster Endgame, top executives bail out Punishment of the innocent
• The forces of financial Darwinian-ism always prevail
• IPO Investment Strategies
• • • • • Beware of seduction of internet metrics Know the flavour of the day Buy the leaders Buy when nobody else will Don’t be afraid to admit a mistake
• IPO Investment Strategies/2
• • • • • Don’t believe the hype Be sensitive to the overall market environ Understand the stage of development of co Suitability of business model to net Biotechnology phenomenon
• Management Helps or Hurts an IPO
• • • • • Who benefits from the IPO Other benefits and fees / perks Management experience and longevity Management track record Independence from controlling shareholders
• Management Helps or Hurts an IPO/2
• • • • • High share ownership by management Reasonable compensation Skilled independent directors Full time, independent executives Shareholder-friendly outlook
• After-market: 4 Scenarios
• • • • Hot IPO. Wait for 3rd day after listing Pricey. Does not live up to pre-IPO hype Last minute bargain. Unlikely to trade well Deals that don’t trade well
• Trading Ideas for IPO allotted shares
• Flip. Price may taper off permanently • Sell before lock-in shares get saleable • Margin calls (in bear markets)
• Mining the Prospectus
• • • • • Front Cover Prospectus Summary Offering Summary Financial Data Risk Factors
• Mining the Prospectus/2
• • • • • • Use of Proceeds Management Discussion & Analysis Cash Flows Business Management & Control Certain Transactions
• Risk Factors - details:
• • • • • • Accumulated Deficits, Ongoing Losses Customer Concentrations Lengthy Sales Cycle Product Acceptance Internal Control Problems Rapid Growth - constraints
• Risk Factors - details:/2
• • • • • • Sole source Contractors Geographical Concentrations Insider Transactions Litigation Fluctuating Results Key Executives
• • • • • • • •
Terminology: After-market Beauty Contest Breaking Issue Price Carve-out Class Action Suit Green Shoe Option Red Herring Prospectus
• • • • • • •
Terminology:/2 Flipping GARP Green Shoe Option Red Herring Prospectus Road Show Syndicate
• Going Public:
• • • • Setting the Stage Board of Directors’ Meeting Process of Going Public The Morning After
• Corporate Finance Literature/1 • Stabilization • Support price a reward for some (Benveniste, Busaba, Williams - BBW, 1996) • Compensates uninformed investors for ‘Winner’s Curse’ (Chowdhry, Singh - CN, 1996)
• Corporate Finance Literature/2 • (T Jenkins & A Ljungqvist, 2001) • Stylized Facts
• Under-pricing Syndrome • Prices (taper off) • ‘Hot Issue’ Period
• Corporate Finance Literature/3
• Investor Behaviour: Optimism and Pessimism. Impact on After market. (Cornelli, Goldreich & Ljungqvist, 2006) • Actions by Underwriters (K Lewellen, 2006)
Thank You
doc_501526553.ppt