De samenvatting is gemaakt aan de hand van het vak Corporate Finance. De volgende hoofdstukken zijn samengevat: 15, 16, 17, 18 & 31. Per deelhoofdstuk is er een kopje gemaakt met daaronder het belangrijkste van het betreffende hoofdstuk waardoor elk onderdeel wordt behandeld.
Chapter 15 Book: how corporations issue securities/ hoe bedrijven effecten uitgeven
15.1. Venture Capital / Risicokapitaal
Venture Capital firms
Equity investment in young private companies. Such venture capital may be provided by investment
institutions or by wealthy individuals who are prepared to back an untried company in return for a
piece of the action. Venture capital organizations aim to help growing firms over the period before
they are large enough to go public.
Venture capital firms are not passive investors.
They specialize in young high-tech firms that are difficult to evaluate and they monitor these
firms closely.
They provide ongoing advice to the firms that they invest in and often play a major role in
recruiting the senior management team.
Their judgment and contact can be valuable to a business in its early years and can help the
firm to bring its products more quickly to market.
Financing stages:
- Zero-stage financing
Funds from personal savings or small loans. When the company is started, most of the effort
comes from the time investment and how to manage people and processes when you start
from nothing. Mostly depends on the team and support from our own equity and time.
- First- or second-stage financing
Investors recognize the value in your company, then there is an agreement on further
development and that is called first or second-stage financing. Reserved for venture
capital and private investors.
- Third stage financing / mezzanine financing
Mezzanine investors come in late, unlike venture capitalists who get in on the ground floor.
Investors:
- Angel investors
Angel Investors are generally high net worth individuals who invest early with their own
money in the creation of a new company.
- Corporate ventures
Large firm that provides equity capital to new innovative companies.
- Crowdfunding
Young start-ups can also use the Web to raise the money from small investors.
- Private equity investors
Means nothing more than private equity. These investors who finance companies outside the
stock market. A publicly traded company can issue additional shares on the stock market if it
needs money, an unlisted company cannot.
Carried interest
Part of an investment's profits paid to the investment manager that rewards the improving
performance.
,15.2. The Initial Public Offering
Initial public offering of stock (IPO)
The first time a company offers its shares through the stock exchange.
- Primary offering > new shares are sold to raise additional cash for the company.
- Secondary offering > shareholders decide to cash by selling parts of their holdings.
Public-choice (offers shares) vs. private-choice (don’t offer shares)
Advantages public corporation:
- To create public shares for use in future acquisitions.
- To establish a market price/value for the firm.
- To enhance the reputation of the company.
Drawbacks public corporation:
- Longer-term costs to operating as a public company.
- Selling shares for less than their true worth.
Underwriters/insurers
Act as financial mid-wives to a new issue. They play a threefold role: first they give the company
procedural and financial advice, then they buy the issuance and finally resell it to the public.
Kind of agreements:
- Green shoe provision in the IPO underwriting agreement that gives the underwriter the right
to sell more shares than planned (mostly 15%).
- Best efforts offer underwriter’s promise to sell as much as possible of an issue, but they do not
guarantee to sell the entire amount.
- All-or-none agreement entire issue is sold at the offering price or the deal is called off and the
issuing company receives nothing.
Blue-sky laws
State laws governing the sale of securities within the state.
Spread
Underwriters receive a payment in the form of a spread as return for their work. They are allowed to
buy the shares for less than the offering price at which the shares were sold to investors.
SEC (Securities and Exchange Commission)
This statement is a detailed document that presents information about the proposed financing and
the firm’s history, existing business, and plans for the future.
Road show
Presentation about the firm given to potential investors in order to gauge their reactions to a stock
issue and to estimate the demand for the new shares.
Under-pricing of IPOs
The practice of listing an IPO at a price below its real value in the stock market. Why?
- By setting a low price at the IPO, there is often enough demand for the shares, allowing the price
to rise later and enabling the company to raise more money.
- Uninformed investors who can’t distinguish which issues are attractive are exposed to the
winner’s curse. Companies and their underwriters are aware of this and need to underprice on
average to attract uninformed investors. The winner's curse occurs when the winning bid in an
auction is often higher than the actual value of the item being sold. This is because the winning
bidder tends to overestimate the value of the item, leading to an overpayment.
,15.3. Alternative Issue Procedures for IPOs
Book building method
Underwriter builds a book of likely orders and uses this information to set the issue price. The
indications are not binding and are used only as a guide to fix the price of the issue.
Advantage book building method:
- It allows underwriters to give preference to those investors whose bids are most helpful in
setting the issue price and to offer them a reward in the shape of under-pricing. The dangers of
allowing the underwriter to decide who is allotted stock.
Open auction
Investors are invited to submit their bids, stating how many shares they wish to buy and the price.
The secondaries are then sold to the highest bidders. Forms of auction:
- Discriminatory auction every winner is required to pay the price that he or she bid.
- Uniform-price auction everyone pays the price of the lowest winning bidder. Better
protection against the winner’s curse. They know that there is little cost to overbidding in a
uniform-price auction. There is a high cost to in a discriminatory auction. Uniform-price auction
therefore should result in higher proceeds.
, 15.4. Security Sales By Public Companies
General cash offer
A public offering made to investors at large.
Procedure: it registers the issue with the SEC, then sells the securities to an underwriter who in turn
offers the securities to the public. Before the price of the issue is fixed, the underwriter will build up a
book of likely demand for the securities, just in case of IPO.
Shelf registration
Filling with the Securities and Exchange Commission (SEC) to register a public offering, usually when
there is no intention to immediately sell all the securities being registered.
Categories of international bonds:
- Domestic bonds
Bonds issued within a country.
+ Easy to get information about how it is going.
- Problems in the country can affect the value.
- Euro bonds
Bonds issued within the EU.
+ value of the Euro is more stable than other currencies, so there is less risk of the value changing
rapidly.
- Problems in the EU can affect the value
- Foreign bonds
Bonds issued outside the EU.
+ interest rate if often higher than the Domestic and the Euro bonds.
- More risky, because it is harder to get information about a company or a bond.
- More risk that the value of the currency will change.
- Global bonds
Bond issued around the world
+ spread the risk, because you can invest in different countries.
- Hard to keep track of the money.
- More risk that the value of the currency will change.
Privileged subscription / rights issues
The right of current shareholders of a corporation to buy newly issued shares before they are
available to the public.
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