Chapter 14 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin...

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Chapter 14 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved Venture Capital, IPOs, and Seasoned Offerings

Transcript of Chapter 14 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin...

Page 1: Chapter 14 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc.

Chapter 14Fundamentals of

Corporate

Finance

Fifth Edition

Slides by

Matthew Will

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved

Venture Capital, IPOs, and Seasoned Offerings

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Topics Covered

Venture CapitalThe Initial Public OfferingThe UnderwritersGeneral Cash Offers by Public CompaniesThe Private Placement

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Venture Capital

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Venture Capital

Since success of a new firm is highly dependent on the effort of the managers, restrictions are placed on management by the venture capital company and funds are usually dispersed in stages, after a certain level of success is achieved.

Venture Capital

Money invested to finance a new firm

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Venture Capital

1.0Value1.0Value

0.5equity originalYour 0.5assetsOther

0.5capital venturefromequity New0.5equity new fromCash

Equity and sLiabilitieAssets

($mil)Sheet Balance ValueMarket StageFirst

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Venture Capital

Second Stage Market Value Balance Sheet ($mil)

Assets Liabilities and Equity

Cash from new equity 1.0 New equity from 2nd stage 1.0

Other assets 2.0 Equity from 1st stage 1.0

Your original equity 1.0

Value 3.0 Value 3.0

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Initial Offering

Initial Public Offering (IPO) - First offering of stock to the general public.

Underwriter - Firm that buys an issue of securities from a company and resells it to the public.

Spread - Difference between public offer price and price paid by underwriter.

Prospectus - Formal summary that provides information on an issue of securities.

Underpricing - Issuing securities at an offering price set below the true value of the security.

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Initial Public Offering

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Initial Public Offering

0

2

4

6

8

10

12

14

16

18

Tot

al D

irec

t C

osts

(%

of

issu

e)

Value of Issue ($mil)

IPOs

SEOs

Convertibles

Bonds

Expenses

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The Underwriters

564,3$ers UnderwritAll

204America ofBank

286SachsGoldman

300UBS

335Bank Deutsche

362BostonCS/First

370Lynch Lerrill

370BrothersLehman

386MorganJP

414StanleyMorgan

$534Citigroup

issues) total of ($bil

2004 in rsUnderwrite U.S. Top

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General Cash Offers

Seasoned Offering - Sale of securities by a firm that is already publicly traded.

General Cash Offer - Sale of securities open to all investors by an already public company.

Shelf Registration - A procedure that allows firms to file one registration statement for several issues of the same security.

Private Placement - Sale of securities to a limited number of investors without a public offering.

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Rights Issue

Rights Issue - Issue of securities offered only to current stockholders.

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Rights Issue

Rights Issue - Issue of securities offered only to current stockholders.

Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right?

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Rights Issue

Current Market Value = 9 mil x $15 = $135 mil Total Shares = 9 mil + 3 mil = 12 mil Amount of new funds = 3 mil x $12 = $36 mil

New Share Price = (136 + 36) / 12 = $14.25/sh Value of a Right = 15 - 14.25 = $0.75

Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right?

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Web Resources

www.ventureeconomics.com www.vnpartners.com www.v1.com www.nvca.org http://biz.yahoo.com/ipo www.ipodata.com www.ipohome.com www.hoovers.com

Click to access web sitesClick to access web sites

Internet connection requiredInternet connection required

http://cbsmarketwatch.com www.dealflow.com www.vfinance.com http://thomson.com/financial http://bear.cba.ufl.edu/ritter www.edgar-online.com


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