FIN501 Strategic Corporate Finance
Module One
Case Assignment
Introduction:
The goal of most aspiring entrepreneurs and their investors is to “go public.” This process allows the company to gain the much needed capital to hopefully fulfill that entrepreneur’s expectation of that company or, as in some cases during the dot com boom, make the quick million dollars and exit the business totally. There are usually substantial gains that are normally associated with the Initial Public Offerings (IPO) of a company, however, some companies ultimately feel cheated when the deal is complete. Since 1980, the opening day price increase after the initial offer has averaged 18.8% rise. (Ritter 2002) The increase in price benefits early investors but represents market value not captured by the corporation. As of recent, there are companies that have chosen to rebel against the traditional IPO system. The alternative method currently gaining in popularity is IPO auctions or otherwise known as the “Dutch Auction”. Most of the IPO auctions have been small companies entering a small market base until the recent IPO auction of the Google Corporation, the online giant of the search engine industry. It announced its intention in April 2004 to auction its shares to the public.
IPO Considerations:
There are two major considerations to take into account when a company is contemplating or the Chief Financial Advisor is suggesting going forward with an Initial Public Offering. The first is how to do it most effectively, and, secondly, whether to do it at all. The second is the threshold question that the Chief Financial Advisor must answer. The question is answered easily by determini ...