STOCK OFFERING

Private Equity
are pools of capital to be invested in companies that
represent an opportunity for a high rate of return. They
come with a fixed investment horizon, typically ranging
from 4 to 7 years, at which point the PE firm hopes to
profitably exit the investment. Exit strategies include
IPOs and sale of the business to another private equity
firm or strategic buyer.
Venture capital financing
▫ is a type of funding by venture capital
▫ private equity capital that can be provided at various
stages or funding rounds.
 5

▫ Common funding rounds include early-stage seed

funding in high-potential, growth companies (startup
companies) and growth funding (also referred to as
series A).
▫ Funding is provided in the interest of generating a
return on investmentor ROI through an eventual exit
such as a merger and acquisition, (also referred to as
M&A), or Initial public offering, (commonly known as an
IPO) of the company.
 Pools of capital invested in private companies
6

Home Resources Knowledge Trading and Investing Private Equity Funds

Public Equity
issuing of stocks in the primary market in exchange for cash.
changes the firm’s ownership structure by increasing the numbers of
owners.
Stocks

▫ A stock is a certificate
representing partial
ownership in the firm. A
common stock is issued
by firms in the primary
market to obtain long
term funds.
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Primary Market

▫ facilitates new financing

for corporations.
 10

Secondary Market

▫ allows investors to sell

the stock they previously
purchased to other
investors who want to
buy it.
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How Stock Markets Facilitates the Flow of Fund?

OWNERSHIP AND VOTING RIGHTS

Common stock PREFERRED STOCK

entitles shareholders to a
number of rights not available to
other individuals. Normally, only the
owners of common stocks are
permitted to vote on certain key
matters concerning the firm.
represents an equity interest in a
firm that usually does not allow for
significant voting rights.
share the ownership of the firm
with common shareholders, compensated
only when earnings have been generated.
is a less desirable source of capital
for a firm than bonds.
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PARTICIPATION IN STOCK MARKETS

Investors can be classified as
individual or institutional.
 13

Individual
▫ The investment by individuals in a large corporation
commonly exceeds 50 percent of the total equity. Each
individual’s investment is typically small, however,
which means that ownership is scattered among
numerous individual shareholders.
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Institutional
TABLE
 15

HOW INVESTORS DECISION AFFECT STOCK PRICES

▫ Investors make decisions to buy a stock when its

market price is below their valuation, which means
they believe the stock is undervalued. They may sell
their holdings of a stock when the market price is
above their valuation, which means they believe the
stock is overvalued.
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INVESTOR RELIANCE ON INFORMATION

▫
Investors respond to the release of new information,
which affects their opinions about a firm’s future
performance. In general, favourable news about a
firm’s performance will make investors believe that the
firm’s stock is undervalued at its prevailing price.
Initial Public Offering
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Friends, 10% Employees,
5%
Investors,
15%

Promoters,
10%
Family, 50%
Venture
Capitalists,
10%

Privately Owned Business

 19

RAISING CAPITAL
 20

Define
▫ Company’s first equity issue made available to the
public
▫ Issue occurs when privately held companies decides to
go public
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Why companies go public?

ADVANTAGES DISADVANTAGES
• Access to capital • Expensive
market • Costs of dealing with
• Improved liquidity for shareholders
shareholders • Allowing competitors to
• Diversification of gain information
original owners • Public pressure
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IPO PROCESS
SELECT AN UNDERWRITER
Let’s start with the first set of slides
REGISTER IPO WITH SEC
Let’s start with the first set of slides
PRINT PROSPECTUS
Let’s start with the first set of slides
PRESENT ROADSHOW
Let’s start with the first set of slides
PRICE THE SECURITIES
Let’s start with the first set of slides
SELL THE SECURITIES
Let’s start with the first set of slides
 29

Is it a good time to do an IPO?

BULLISH MARKET BEARISH MARKET
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 31

IPO Return
▫ The PSEi increased 251 points or 3.35% since the
beginning of 2019, according to trading on a contract
for difference (CFD) that tracks this benchmark index
from Philippines. Historically, the Philippines Stock
Market (PSEi) reached an all time high of 9058.62 in
January of 2018 and a record low of 129.52 in
February of 1986.
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Flippining Shares
 33

IPO’s of
 34

Abuses in the IPO

Market
▫ Spinning
▫ Laddering
▫ Excessive Commission
▫ Distorted Financial
Statements
 35

Long-Term Performance
Following IPO
Stock Offerings and Repurchases
Secondary Offering
is the sale of new or closely held shares by a company
that has already made an initial public offering (IPO).
 38

Two types of secondary offerings.

Non-dilutive secondary offering Dilutive secondary offering
▫ sale of securities in which ▫ involves creating new
one or more major shares and offering them for
stockholders in a company public sale
sell all or a large portion of
their holdings
▫ proceeds from this sale are
paid to the stockholders that
sell their shares.
 39

STOCK REPURCHASES
▫ refers to when the management of a
public company decides to buy back
company shares that were previously
sold to the public. There are several
reasons why a company may decide to
repurchase its shares.
Stock Exchanges
an exchange (bouse) where brokers and traders can buy
and sell shares if stocks, bonds, and other securities.
 EXTENDED TRADING
OVER - THE - COUNTER SESSIONS ( Electronic
MARKET (off exchange Trading Hours ETH)
ORGANIZED EXCHANGES
trading) ▫ is stock trading that
▫ purchasers and
▫ is done directly happens either before
sellers regularly
between two parties or after the trading
gather to trade
without the day of a stock
securities according
supervision of an exchange, pre -
to the formal rules
exchange. market trading or
adopted by the
after - hours trading.
exchange.

STOCK QUOTATIONS PROVIDED
BY EXCHANGE
▫ is the price of a stock as
quoted on an exchange - it
provides information for
specific stocks such as it's
bid and ask price, last traded
price and be volume traded.
42
STOCK INDEX QUOATION
▫ serve as performance
indicator of specific stock
exchanges or of a particular
subsets of the market. It
allows investors to compare
the performance of
individual stocks with more
general market indicators.
 43

Private Stock Exchange

▫ private sector which does not offer or trade it's
company stocks (shares) to the general public on the
market exchange or only a relatively small number of
shareholders only.
Monitoring Publicly Traded Companies
The easiest way for shareholders to monitor the firm is
to monitor changes in its value (as measured by its
share price) over time. Since the share price is
continuously available, shareholders can quickly detect
any abrupt changes in the value of the firm. If the stock
price is lower than expected, shareholders may attempt
to take action to improve the management of the firm.
Role of Analysts
▫ Analysts are often employed by securities firms and
assigned to monitor a small set ofpublicly traded firms.
Although analysts can provide useful information for
investors, they have historically been very generous
when rating stocks.
Stock Exchange Rules
▫ In the 2002–2004 period, U.S. stock exchanges
imposed new rules to prevent some obvious conflicts
of interest faced by analysts.
 46

Accounting Irregularities
▫ To the extent that managers can manipulate the
financial statements, they may be able tohide
information from investors.
▫ Overall, investors’ monitoring of some firms was
limited because the accountants distorted the financial
statements, the auditors did not properly audit, and
the audit committees of those firms did not properly
oversee the audit.
 47
Sarbanes-Oxley Act

▫ was enacted in 2002 to ensure more accurate disclosure of

financial information to investors, and therefore allows investors
to more effectively monitor the
▫ financial condition of firms. It requires firms to establish an
internal control process to
▫ improve their reporting. It also attempts to prevent potential
conflicts of interest that
▫ could occur when firms have their financial statements audited
by a public accountingfirm.
 48

SHAREHOLDER ACTIVISM
▫ If shareholders are displeased with the
way managers are managing a firm, they
have
Three general choices.
1. Do nothing and retain their shares
2. Sell the stock
3. Engage in shareholder activism
 49

Limited Power of
Governance
▫ Although much attention has been given in financial
markets to how managers are subject to increased
governance, there is some evidence that the
governance is not very effective.
▫ In spite of the Sarbanes-Oxley Act, shareholder
activism, proxy contests, and shareholder lawsuits,
the agency problems of some firms remain severe.
Market for Corporate Control

In essence, weak businesses are subject to a takeover by more efficient

corporations and are thus subject to the “market for corporate control.”
Therefore, if a firm’s stock price is relatively low because of poor
performance, it may become an attractive target for other corporations
Market for Corporate Control
Leverage Buyouts
The market for corporate control is enhanced by the use of leveraged buyouts
(LBOs),which are acquisitions that require substantial amounts of
borrowed funds. That is, the acquisition requires a substantial amount of
financial leverage.
Market for Corporate Control
Barriers
 Antitakeover Ammendments
 Poison Pills
 Golden Parachute
Golden Parachute
 specifies compensation to managers in the event that they lose their jobs
or there is a change in control of the firm.
 Globalization of Stock Market

* Enhance it's global image of the issuing firm

*The issuing firm is tapping a larger pool of investors, it can more easily place
the entireissue of new stock.
MAPS
57

our office
 GLOBALIZATION OF STOCK
MARKET
Privatization

Businesses are so large that local stock markets cannot

digest, Consequently, investors
from various countries have invested in
the privatized
 GLOBALIZATION OF STOCK
MARKET
Emerging stock markets

 Enable firms to raise large amounts of capital by issuing stocks.

 A means for investor from U.S and other countries to invest their funds.
 GLOBALIZATION OF STOCK
MARKET
New and small market < U.S stock market

 First, only privides little enforcement to issue correct

financial information offered.
 Second, business do not repay investors are rarely
prosecuted.
 Third, do not provide efficient systems, that investors can
use to obtain the funds they believed they owed.
 Fourth, susceptible to manipulation of large traders.
 GLOBALIZATION OF STOCK
MARKET
In general large institutional investors and insiders
based in foreign markets may have some advantages.
 GLOBALIZATION OF STOCK
MARKET
Variation in characteristics across stock market.

investors are attracted to stock markets in countries that provide

voting rights and legal protection for shareholders, strictly enforce the
laws, do not tolerate corruption, and impose stringent accounting
requirements. These conditions enable
investors to have more confidence in the stock market and allow for
greater pricing efficiency. In addition, companies are attracted to the
stock market when there are many
 GLOBALIZATION OF STOCK
MARKET
Method used to invest in foreign stock
 Direct purchase
 American depository receipt
 International mutual funds
 International traded exchange funds
Direct purchases
Investors can easily invest in stocks of foreign companies that are
listed on the local stock exchanges. Foreign stocks not listed onlocal stock
exchanges can be purchased through some brokerage firms.
American depository receipts (ADRs)

which are certificates representing shares of non-U.S. stock. Many

non-U.S. companies establish ADRs inorder to develop name
recognition in the United States. In addition, some companies wish
to raise funds in the United States.
International mutual funds
which are portfolios of internationalstocks created and managed by
various financial institutions. In this way, individuals can diversify
across international stocks by investing in a single IMF. Some IMFs
focus on a specific foreign country, whereas others contain stocks
across several countries or even several continents.