Equity

Issuance Process

Case: TRX, Inc.: Ini8al Public Oering

Public Issues

IPO

Advantages
Immediate inow of capital
Improving D/E ra8o
Raising addi8onal funds in future
Increased value for the company
Less dilu8on
Higher price for promoters exit
Win customers
Secure nancing
Expansion
Eect merger or acquisi8ons
Access to Capital Markets
Greater Liquidity and Fair Value
Transparency
Greater Goodwill
Exit Route for Venture Capitalists

Disadvantages
Highly expensive (17%)
Risk of devolvement of the issue
Absorbs large amount of 8me and
energy
Loss of privacy
Control dilu8on
Reduced exibility
Increased pressure from share holders
Diculty in maintaining good investor
rela8on at regular intervals
Vola8lity in stock prices
Addi8onal cost as a public company
Cumbersome & costly process
Lack of sincerity due to separa8on of
ownership
Greater responsibility in providing data
Promoters stand to loose control
Some8mes share prices do not
represent fair value of company due to
vola8lity etc.

Prerequisite
Proven track records and
good earnings poten8al
Desirable products or
services or valuable
intangibles
Clear sense of direc8on
Sucient market
Good management team
and style
Strong systems
Objec&ves
Expansion or debt
renancing
Divestment
opportuni8es
Future funding
Valuing rm by public
Enhance corporate
viability an reputa8on
Enable borrowing
Exi8ng promoters

IPO Process

Pre Requisites
Generate credible business plan
Gather qualied management team
Create an outside BOD
Prepare audited nancial statements
Performance measures and projec8ons
Develop rela8onship with investment
bankers, lawyers and accountants
Holding Bake-o mee8ng with poten8al
investment banks to discuss the equity
issuance process with a no. of candidates
before selec8ng a lead underwriter

Important characteris&cs of an
underwriter
Proposed compensa8on package
Previous track record
Analyst research support
Distribu8on capabili8es
A^er market-making support

Event 8me
Event
(in Days)
<0
Underwriter selec8on mee8ng.
Organiza8on all hands mee8ng. Quiet period begins
(Management, Underwriters, Accountants, Legal Counsels)
0
- Plan process and agree on specic terms
Due diligence. Underwriter interviews management,
suppliers, and customers; reviews nancial statements;
15-44
dra^s preliminary registra8on statement. Senior
management underwriter gives ok on issue
Registra8on (announcement) date. Firm les registra8on
statement with SEC; registra8on statement is immediately
45
available to the public
SEC review period. SEC auditor reviews for compliance with
SEC regula8ons. Underwriter assembles syndicate and
45-75
prepares road show
50
Distribute preliminary prospectus (Red herring).
Road show. Underwriters and issuing rm management
present oering to interested ins8tu8onal investors and
60-75
build book of purchase orders.
Lekers of comment received from SEC; Amendments led
75-99
with SEC.
Eec8ve date. Underwriter and rm price oering. SEC gives
99
nal approval of registra8on statement.
100
Public oering date. Stock issued and begins trading.
Seklement date. Underwriter distributes proceeds to issuing
108
rm.
Underwriter may support new equity by ac8ng as market
A^er market
maker and distribu8ng research literature on issuing rm

IPO Process

Underwri&ng Agreement / LeAer of Intent

Prepared by: underwriters counsel
generally
Provides most of terms of the underwri8ng
agreement
Has no legal binding
Described the securi8es to be sold, set
forth the rights and obliga8ons of the
various par8es, and established the
underwriter compensa8on
Not signed un8l the oering price was
determined (just before distribu8on
began)
Both the rm and the underwriter were
free to pull out of the agreement any8me
before the oering date
If the rm did withdraw the oer, the
leker of intent generally required the rm
to reimburse the underwriter for direct
expenses

Filing with SEC

Solicit the commissions approval
Prepara8on of the prospectus
Answers to specic ques8ons
Copies of the underwri8ng contract
Company charter and by-laws
Specimen of the security
Performance of due-diligence procedures
Reviewing company documents, contracts, and tax
returns, visi8ng company oces and facili8es,
solici8ng comfort lekers from company auditors,
and interviewing company and industry personnel

IPO Process

Forming Underwri&ng Syndicate

Formed by lead underwriter
Composed of a number of investment banks who agreed
to buy por8ons of the oering at the oer price less the
underwri8ng discount
Dealers were also enlisted to sell a certain number of
shares on a best-eorts basis
Selling agreement provided the contract among members
of the syndicate
Agreement provided power of akorney to the lead
underwriter, s8pulated the management fee that each
syndicate member was required to pay the lead
underwriter, the share alloca8ons, and the dealer
reallowance or concessions
Exact terms of the agreement were not specied un8l ~48
hours before selling began, the agreement did not become
binding un8l just before the oering
Specied a range of expected compensa8on levels.
Selling agreement was structured so that the contract
became binding with oral approval of the contract via
telephone by the syndicate members a^er the eec8ve
date

SEC Review Process

Review process started when the registra8on statement
was led and the statement was assigned to a branch
chief of the Division of Corporate Finance
Statement was given to accountants, akorneys,
analysts, and industry specialists
To provide full and fair disclosure of the character of
securi8es sold in interstate commerce
Registra8on statement became eec8ve 20 days a^er
the ling date
If the commission found anything in the registra8on
statement that was regarded as materially untrue,
incomplete, or misleading, the branch chief sent the
registrant a leker of comment detailing the
deciencies. Following a leker of comment, the issuing
rm was required to correct and return the amended
statement to the SEC. Unless an accelera8on was
granted by the SEC, the amended statement restarted
the 20-day wai8ng period

IPO Process

Book-Building Ac&vi&es
Surveying poten8al investors to construct a
schedule of investor demand for the new issue
Generate investor interest, the preliminary
oering prospectus or red herring (since the
preliminary prospectus was required to have
Preliminary Prospectus printed on the cover in
red ink) was printed and oered to poten8al
investors
Underwriters organizing a one- to two-week
road show tour
Road shows allowed managers to discuss their
investment plans, display their management
poten8al, and answer ques8ons from nancial
analysts, brokers, and ins8tu8onal investors in a
variety of loca8ons throughout the country or
some8mes abroad
Place tombstone ads in various nancial
periodicals announcing the oering and lis8ng
the members of the underwri8ng syndicate

Nego&a&ng Final Oer Price and Underwriters

Discount
Nego8ated price depended on perceived investor
demand and current market condi8ons (e.g.,
price mul8ples of comparable companies,
previous oering experience of industry peers)
Underwri8ng agreement was signed, and the
nal registra8on amendment was led with the
SEC
Company and underwriter generally requested
accelera8on by the SEC of the nal pricing
amendment, which was generally granted
immediately over the telephone
Oering was now ready for public sale
Final pricing and accelera8on of the registra8on
statement generally happened within a few
hours

IPO Process

Eec&ve Day
Lead underwriter conrms the selling agreement
with the members of the syndicate
Members of the syndicate sell shares of the
oering through oral solicita8ons to poten8al
investors
Since investors were required to receive a nal
copy of the prospectus with the conrma8on of
sale and the law allowed investors to back out of
purchase orders upon receipt of the nal
prospectus, the oering sale was not realized
un8l underwriters actually received payment
Underwriters would generally cancel orders if
payment was not received within ve days of the
conrma8on
Underwriters o^en posted stabilizing bids at or
below the oer price, which provided some price
stability during the ini8al trading of an IPO

Oering SeAlement
Oering seklement or closing occurred seven to
ten days a^er the eec8ve date, as specied in
the underwri8ng agreement
Firm delivers the security cer8cates to the
underwriters and dealers
Lead underwriters delivers the prescribed
proceeds to the rm
Firm tradi8onally delivers an updated comfort
leker from the companys independent
accountants
Following the oering, the underwriter generally
con8nued to provide valuable investment
banking services by providing research literature
and market-making services for the company

IPO Pricing

Factors considered in Preliminary Price by

Merchant Banker
Special risk factors
Use of proceeds
Financial and opera8ng leverage
Reasons for change sin the companies nancial
condi8ons
Principal products or services
Patents
Marke8ng
Produc8on
Management
Outside director
Regula8on
Li8ga8on
Futures earnings
Cash ow from opera8ons
P/E or P/CE ra8os from es8mated EPS

Es8ma8ng the
preliminary
price by the
merchant banker

Factors Aec&ng IPO Pricing

Expected Future Protability based on factors
like income, EPS, Revenue etc.
Total composi8on of Debt
Underwriters Reputa8on
Timing of Public Oer Bullish/ Bearish
Structure of Company Board
Post Issue holding of Promoters
Credit Ra8ng by Agencies
Tendency to Under price
Book Built Price/ Fixed Auc8on Price
Size of the Issue

Deciding price
band

Deciding oering
price

IPO Pricing

Deciding Price Band

Forecas8ng market for the scrip
Nego8ated between merchant banker and
issuing company
Based on
Comparing with similar listed company for
Future earnings, Cash ow from opera8ons,
Fundamental asset valua8ons
SWOT analysis of issuing company
Past and expected quarterly and half yearly
earnings
Overall trend in IPO market
Shareholding pakern before and a^er issue
Poten8al share holders upon lis8ng stocks
Finding out a market-maker
Broker and prospec8ve investors percep8on
about company management
Future of companys product and services
Company accoun8ng methods

Deciding Price Band Based on.

Nego8a8on between company and the merchant
banker
Current market condi8ons
Specic demand for oering at alterna8ve price
levels from ins8tu8onal investors
A^er market performance of the scrip
Buying interest of investors long-term or short-
term
No. of shares and share holding pakern changes
Net Asset Value Appraoch
Total assets - liabili8es = net worth value
Total shareholders funds - Con8ngent liabili8es =
value of net worth
Net worth / Total shares = net asset value per
share
Prot Earning Capacity Value
PECV is arrived at by capitalizing the average of
the a^er tax prots for three or ve years.

IPO Pricing

Controller of capital issues (CCI) pricing

An8-compe88ve pricing
Always over subscribed
Abolished in June 1992
Free pricing
Pricing at premium
Companies with good fundamentals
Cause more overpricing issues

Issues of Free Pricing

Inadequate disclosure in prospectus
Akrac8ve / inated projec8ons
Price rigging by promoters.
Buying shares through intermediaries
Large scale buying
Inated results
Rights issue announcements

Concessional Pricing for Promoters

Preferen8al allotment of shares to promoters at
a discount to the market price
Huge block of shares at he^y discounts at the
cost of inves8ng public
May have lock-in-periods
Fixing Share Premium
Avg. EPS from companys projec8on is taken and
mul8plied by its adjusted P/E in comparison to
the industry P/E
Also based on qualita8ve factors like.
Quality of management
Marke8ng network
Technical collabora8ons
Low cost of produc8on
Brand equity
Other indicators using projec8ons.
Return on net worth (RONW)
Return on capital employed (ROCE)
Margin indicators compared with industry
average and other companies are.
Gross prot margin (GPM)
Opera8ng prot margin (OPM)

IPO Pricing

Alterna&ve Methods of Fixing Share Premium

Based on intrinsic value..
Intrinsic value = average earning before tax
(yield expected by the investors growth in
earnings in last two years)
Its a subjec8ve method dierent investors
expect dierent yield
Based on share holding pakern and yield
expected by dierent categories of investors
Based on rela8on between BV to MV or market
capitaliza8on to earnings in case of a listed
company
Based on auc8on process
Investor quote their prices
Half of the shares are issued on bid price and
others on weighted average price of the auc8on
Based on layered xa8on of face value plus
premium

Jus&ca&on of Premium Fixa&on

Based on qualita8ve and quan8ta8ve factors
Qualita8ve factors
Companys past record in consistent dividend payout
and con8nuous prot making
Experience of the promoters in the relevant eld
Companys USP includingMarke8ng edge over
compe8tors, Distribu8on network, Brand equity for
products, Clients reputa8on
Companys en8tlement to sales and income tax
Industry scenario
Demand-supply gap
Awards received by company
Credit ra8ng received
Quan8ta8ve factors
Companys past performance
Future projec8ons
P/E mul8ples based on oer price
Projected earnings compared with industry average
PAT, EPS, book value,
Percentage growth in past years
Comparison betweenBV and oer price, Oer price
and projected earnings
High promoters stake

Legal Framework

SEBI is the regulator for IPOs

Disclosures and Investor Protec8on guidelines
- All relevant informa8on about the company
is known to public before they apply to the
IPOs
All informa8on should be contained only in
the oer document
Companies and their lead merchant bankers
are required to provide jus8ca8on for the
issue price
Promoters contribu8on to be atleast 20% of
the issue size
For IT, Media/entertainment and Telecom
sector companies this requirement is relaxed
to 10%
In case of book-building process, atleast 25%
to be issued to retail investors, 15% to be
issued to Non Ins8tu8onal Investors
The 8me for nalizing the allotment is
reduced from 30 to 15 days in book-built
issues. Shares have to be traded within 7 days
of allotment
Company can retain 15% over subscrip8on

Companies allowed to oer at premium are

New companies set up by the exis8ng
companies with a ve year track record of
consistent protability
Exis8ng private/closely held companies and
other unlisted companies with three years
track record of consistent protability
Exis8ng listed companies
IPO can be cancelled even a^er a stock starts
trading
Allotments to QIB (FIIs, FIs, MFs) will be on a
propor8onate basis
No business rela8onship should exit between
merchant banker and ins8tu8onal investor
To avoid specula8ve biddingQIBs while
subscribing have to pay 10percent value of
the shares they are applying for, along with
applica8on.

Measuring IPO Success

Measuring
Increase in share price on the rst day of trading
Two-digit increase in share price on the rst day of
trading
IPOs doubled share prices on day one

Measure of the mis-pricing is a measure of failure of

an IPO

Large rst day jump cause signicant and

inappropriate transfer of value to subscribers

Market compe88veness
Measuring rela8ve company value equal to or higher
than industry peers
Within 30 days of IPO, the companys market
capitaliza8on should be at or above the level of its
industry peers
For banking and nancial services companies
Measured as market-to-book value of equity
Industrial companiesMeasured as Market value of
equity over earnings, En8ty value over EBITDA, Cash
ows

Market pricing
Less than 20% change between oering price
and 30-day post-IPO market capitaliza8on
Oering price reec8ng the market value of
the assets sold ensures fair compensa8on to
new and old investors
a^er 30 days allowing the market 8me to
fairly evaluate the assets on oer

IPO Under (Over) Pricing

Based on intrinsic value

Rit = [(pit/Pi0)-1]*100

1 n
1+
rit
N i =1
WRit =
1 n
1+
rmt
N t =1

Rit = return on stock i in period t

Pit = price of stock i in period t

Pi0 = oer price of stock iRit is posi8ve =
underpriced
Rit is nega8ve = overpriced
May also use market adjusted return
A Rit = Rit Rmt
Where Rmt = [(pmt/Pm0)-1]*100

Based on wealth rela&ve indicator

N = total number of IPOs in the sample

rit = Rit/100
rmt = Rmt/100
WRit >1 ..the IPO has outperformed the
market in that period
WRit <1 ..the IPO has underperformed
the market in that period

Informa8on asymmetry between exis8ng and new investors can lead to under pricing

Investors Precau8ons

Merchant banker try to price the deal so

that the opening premium is about 15
percent
IPO investors should be quality conscious
in likle-known names
Lis8ng gains are not guaranteed
IPOs registered losses on debut trading
would have had low subscrip8on level (less
than 6 8mes)
Its beker to divest the exposure in IPOs by
the end of the rst month from debut
trading
Investors would be beker o inves8ng in
much less-hyped IPOs
Pick IPO stocks from the sector which out
performs the market

Generally xed price oers pay more

return than the book built prices
Do not buy an IPO stock during rst few (5
to 6) months a^er lis8ng
Promoters money may be routed through
foreign funds to create a hype on the IPO
through over subscrip8on levels
Hedge funds entering IPO for making a
quick prot at the 8ming of lis8ng
FIIs act desperately on the lis8ng day
Foreign funds would not hold stocks if they
do not get a pre-dened-quan8ty of shares

Investors Precau8ons

IPO Scams
Cornering IPO shares reserved for retail investors
by applying in small quan88es through thousands
of benami or c88ous names
Shares were transferred through a series of o-
market transac8ons to nanciers
24 key operators have indulged in abusive
prac8ces in respect of 21 IPOs
Depositories to block the securi8es in demat
accounts of investors 8ll lis8ng
MF pays only 10% of investment upfront while
applying
Short-term capital gain tax is not there on mutual
selling on lis8ng, but for an individual investor
has to pay the tax
MF can apply for more no. of IPOs
MF get beker allotment, becoz 5% shares are
reserved for ins8tu8onal investors
Applying through MF is simpler than yourself
applying with long applica8ons

Popular Empirical Findings

Over-subscrip8on is higher in book-built oerings

than in xed price oerings
Use of book-building instead of the xed price
mechanism reduced under pricing from 77% to
34%
Older rms are easier to value; these were sold
at lower levels of under pricing
Reduced uncertainty regarding the net roceeds
from an IPO that used book-building approach
Aggregate money raised through IPO's improves
when past market returns are posi8ve
List price is strongly dependent on oer price and
subscrip8on

IPO
Capital Raising
Op8ons

Private
Placement of
Equity
Private
Placement of
Debt

IPO

Capital Raising
Op8ons

Private
Placement of
Equity
Private
Placement of
Debt

To Davis, the IPO seemed the best op4on

An IPO would be an important milestone for TRX

Oering would provide equity capital and facilitate future access to the public
markets

Oered liquidity for exi4ng minority shareholders

Lead to a beFer alignment of his stakeholders

In October 2004, Davis and TRX management met with investment banks

He selected the technology banking team from Credit Suisse First Boston
(CFSB) to lead the oering

Davis and major shareholders from BCD Technology had developed a close
rela4onship with CSFB since TRXs incorpora4on in 1999, and both par4es were
familiar with each other

More importantly, CSFB had strong analyst coverage in the online travel and
data-transac4on sectors, which Davis believed would help investors
understand TRXs business model

Three co-managers were also selected to assist in the public oering: Thomas
Weisel Partners LLC; Legg Mason Wood Walker, Incorporated; and SunTrust
Capital Markets, Inc.

Choosing a co-underwri4ng team was important because it allowed the
company to increase its research coverage and reach a larger investor
audience

IPO

Capital Raising
Op8ons

Private
Placement of
Equity
Private
Placement of
Debt

Ideally, the underwri4ng banks should bring complementary skills and a

diversied investor client base

In this case, each bank brought a unique set of competenciesThomas Weisel
was known for its aggressive sales and trading eort, while Legg Mason and
SunTrust had a wide investor client base in the central and southern United
States

While Davis was pleased to have a strong team on board, CSFBs research
reported a choppy market for IPOs in 2004

The NASDAQ market had trended down in 2004, reaching a low in August 2004
before making a strong recovery in the nal two quarters of the year

These broader market condi4ons were mirrored in the terms of IPOs

For two consecu4ve months from July to August 2004, pricing was poor as
technology IPOs experienced a 17.6% and 23.8% decline in the le price to
oer price in those months

In September and October 2004, however, the pricing environment improved
as the IPOs issued in July and August traded up (oer to current price)
With an improving climate, Davis and CSFB made tenta4ve plans for an IPO
ling in March 2005

Following a strong fourth quarter in 2004, the U.S. technology IPO market
experienced a dicult start to 2005, causing Davis and TRX to push back the
companys IPO ling

IPO

Capital Raising
Op8ons

Private
Placement of
Equity
Private
Placement of
Debt

By May, the NASDAQ began to rebound

Further, the U.S. technology IPO backlog remained at in the range
of $3.7 billion to $4.5 billion

The backlog, which was a measure of pending supply, was half the
$9 billion to $10 billion of a year ago, when IPO giants such as
Google (with $1.9 billion in proceeds) had gone public

Hope was that rming market condi4ons would facilitate an IPO
issue in the second half of 2005
With the expecta4on of beFer market condi4ons ahead, Davis
decided to ocially start the IPO process

On May 9, 2005, TRX led an S-1 registra4on statement with the
U.S. Securi4es and Exchange Commission (SEC) for a proposed IPO
of 6.8 million shares of common stock

TRX agreed to sell 3.4 million primary shares; the remaining 3.4
million shares were secondary shares

TRX would not receive any proceeds from the sale of secondary
shares

Those proceeds would go instead to the selling shareholders, Hogg
Robinson and Sabre, which were selling 2.131 million and 1.239
million shares to the public, respec4vely

Decision
When Davis returned to
Atlanta at the end of the
road show, he got a call
from two managing
directors of the Global
Technology Group at CSFB

Go ahead with the

IPO at the lower
price of $9 per share

From the book-building

results, CSFB concluded
that the proposed le range
of $11 to $13 per share
could not be achieved with
current investor demand

Decision
Based on their experience,
the nal IPO oer price
would need to be lowered
to $9 per share to secure
enough investors

Below-the le-range
adjustment would reduce
the companys expected
IPO proceeds by $10.2
million, a 25% decrease

Withdraw the IPO

and wait for a beker
8me to try again

Go ahead with the

IPO at the lowest
price of $9 per share

Decision

Withdraw the IPO

and wait for a beker
8me to try again

Would allow TRX to raise capital (albeit less than

originally expected) to support growth and
accelerate the transi4on away from customer care

Challenge would come from the two selling
shareholders, Hogg Robinson and Sabre

How would they respond to the lower price?

The revised price of $9 per share was lower than
the price they had paid for their shares in
November 2001

Lack of agreement to proceed at the lower price
could poten4ally block the IPO

He had placed calls to both par4es to discuss the
situa4on and was prepared for dicult
conversa4ons

How likely were they to agree to the $9 price?

What op4ons existed if they said no?

Go ahead with the

IPO at the lowest
price of $9 per share

Decision

Withdraw the IPO

and wait for a beker
8me to try again

Would allow TRX 4me to grow and complete the exit

from the customer-care business before the next IPO
aFempt

With an increased focus on higher-margin businesses,
some of TRXs opera4onal uncertainty would be reduced

Davis believed the valua4on of the company would
become more favorable

Davis also knew his majority shareholder (BCD
Technology) was pa4ent and would allow him to make
the best decision

In the interim, though, he would have to nd a way to
cash out Hogg Robinson, whose inten4on to exit was
most pressing

Bankers at CSFB waited anxiously to hear back from him

If Davis decided to proceed with the IPO, the pricing
mee4ng would commence aper the close of trade that
day, and the alloca4on process of new shares would
begin in earnest

TRX Products and Services

RESX

SELEX

CORREX

TRANXACT

DATATRAX

An online corporate booking

tool that is oered through a
Web-based interface for
business travelers and
corporate travel managers,
enabling the client to arrange
airline, vehicle, and hotel
reserva8ons
Notable RESX clients included
Carlson Travel Group,
Adelman Travel Group, Intel
Corpora8on, and World
Travel BTI

An online reserva8on
technology plaorm that
allowed travel agents and
customer care
representa8ves to make
travel reserva8ons, process
service requests, and
manage customer proles in
a real-8me customer service
environment
SELEX was a Web-based
interface that provided
access to traveler proles
and behavior data, corporate
travel policies, and interoce
communica8ons
SELEX was used by large
travel agencies and their
designated customer-service
providers
Notable clients included
American Airlines, Expedia,
and ebookers

Transac8on processing
plaorm enabling ecient,
automated quality control,
le nishing, and electronic
8cke8ng of travel
reserva8ons
CORREX processed all
transac8ons for leisure and
corporate travel that are
booked on-line and o-line
by agents
The so^ware enabled such
systems as seat assignment,
low-fare searches, travel
upgrades, and alternate-
route searches
CORREX also managed all
electronic 8cke8ng, including
e-8cket issuance, e-mail
no8ca8on and
communica8on, and pretrip
repor8ng
CORREX was hosted by TRX
and managed by clients
Notable CORREX clients
included American Express,
Boeing, Carlson Wagonlit
Travel Inc., Expedia, and
WorldTravel BTI

Transac8on processing
plaorm providing
transac8on seklement,
excep8on handling,
document distribu8on, and
back oce accoun8ng
TRANXACT managed
transac8on processing and
fulllment ac8vi8es for travel
agencies, airlines and non-air
suppliers
TRANXACT handled mul8ple
ac8vi8es for our clients
including exchanges, refunds,
waivers and split payments,
commission management,
fare loading, document
distribu8on, debit memo
processing, back oce
hos8ng, and seklement and
client repor8ng
TRANXACT was hosted and
operated by TRX on behalf of
its clients, which included
American Airlines, ebookers
plc, Expedia, lastminute.com
plc, and Opodo.

An integra8on plaorm
enabling the aggrega8on,
enhancement, extrac8on,
and repor8ng of transac8on
data
DATATRAX consolidated data
records from a variety of
sources, including credit card
issuers, credit card networks,
back oce travel systems,
hotel suppliers, airlines, and
GDSs, and normalized the
records into a common
structure in a single data
repository
DATATRAX also enabled
enhancement of data records
with more detailed
transac8on data from other
sources, increasing the value
and u8lity of the data to the
clients
DATATRAX clients included
Bri8sh Airways PLC, Ci8bank,
Ford Motor Company,
Lockheed Mar8n

TRX oered ve major business solu4ons to manage transac4on processing and data integra4on for its clients

TRX generated its revenue by providing these solu4ons and charging a fee on a per-transac4on basis

As TRX solu4ons become more integrated in the clients end-to-end business processes, it increased the transac4on volume and, in turn,
generated more revenue

NASDAQ Market and Travel Industry

Performance

Selected Financial Data

(in Thousands, Except for Per-Share Data)

Selected Financial Data (VCS)

Balance Sheet Information

Pricing Informa8on on Recent IPOs

(July 2004 - June 2005)

U.S. Technology IPO Backlog

(July 2004 - July 2005)

Principal and Selling

Shareholders

Summary comparable Company Analysis

($ in Millions, Except Per Share Values)

Summary of Financial Projections

TRX's Road Show Summary Schedule

Akributes of Good IPO Candidate

Company
Capable management
Strong revenue growth
Posi8ve prots or cash ow
High and sustainable growth prospects
Appropriate nancial structure
Opera8onal stability and clarity
Ability to quickly scale opportunity
Well understood use of proceeds
Reasonable valua8on

Industry
Well posi8oned compe88vely
barriers to entry, unique product or
service, etc.
Posi8ve industry dynamicswave of
innova8on, changing technology or
consumer preferences
In a cyclical industry, at a favorable
point in the cycle

Market condi4ons also contribute to investor interest in IPOs

Beker Alterna8ve to IPO?

Another private
placement instead of an
IPO
BCD should just provide
the addi8onal funds
necessary to buy out
Sabre and Hogg Robinson

Mo8va8on behind to
pursue the IPO

Will allow 8me for TRX to exit the customer-care business

Given the issues that arose with Sabre and TRXs goal of independence, it is unlikely that Davis will want to raise funds from
another industry player
Raising money from a nancial buyer also poses dicul8es
For one, TRXs majority shareholder, BCD Technology, is described as pa8ent and taking a long-term view
Raising money from nancial buyers could create a conict between their 8me horizon and that of BCD

Even a^er the IPO, BCD will retain a 53% stake in the company
Not only would BCD have to pay o the $20 million note, but also provide the addi8onal monies that would have been
raised in the IPO to facilitate TRXs growth
It is unlikely that BCD will want to increase its already sizable stake in the company to this extent.

Maturity on the conver8ble note was November 2006, a likle more than a year from July 2005
At that point, either the note had to be paid o or the minority shareholders would convert and become shareholders in
TRX
Given the poten8al conicts between Sabre and TRX, Davis was not eager to have Sabre as a TRX shareholderespecially
one where without a liquid market, it would become a long-term shareholder or could sell its shares to someone of its
choosing
Apart from an IPO, nego8a8ons regarding Sabres exit from TRX were likely to be dicult
The IPO provided a transparent means to facilitate the removal of Sabre

Strategic Reposi8oning of the Company and the use of the IPO as an Exit for
Minority Shareholders Aect the Akrac8veness of the IPO

IPO may have been TRXs

best choice given the dual
goals of raising funds and
liquida8ng its minority
shareholders

Proceeds of the sale of

primary shares go to the
company, whereas the
proceeds of the sale of
secondary shares go to Sabre
and Hogg Robinson

Investment bankers lower

the oer price to account for
the informa8onal asymmetry
created from what depar8ng
shareholders know that new
investors may not

IPOs accompanied by the

sale of insider shares
experience more
underpricing

Even in a situa8on where

management believes the
departure of minority
shareholders is benecial to
the rm, convincing investors
of that may prove dicult

Recommenda8on

Hard that Sabre and Hogg

Robinson will agree to an IPO
price below the $11 they paid for
their shares in Nov 2001

From the perspec8ve of when

they invested in Nov 2001, TRX
has made substan8al progress as
a company

They are less sure about how

Davis can resolve this issue

Therefore, they are unlikely to

agree that that value should be
less now than when they invested

Opinions will vary widely, from

withdrawing the IPO and raising
capital from other private
investors, to possibly proceeding
with the IPO if a way can be
found to resolve the issue with
Sabre and Hogg-Robinson