Initial Public Offerings

10 Jul 2015

Private Placements & Initial Public Offerings

What is a PPO or what is Pre-IPO Capital?

Well it’s exactly that, capital (or money) that is raised prior to an IPO, and they may have also issued a prospectus in order to attract investor funds before the company lists.

What is an IPO?

An IPO (Initial Public Offering) refers to the time when a company ‘lists’ on the stock exchange.

What Is An IPO?

An initial public offering (IPO) represents the first time a company sells shares to the public, opening up the business from private ownership, and empowering new investors with the right to vote on future decisions. While most companies aim to bring on large institutional shareholders to form the foundations of its shareholder base, public companies tend to have thousands of different investors – big and small.

  • The main purpose of an IPO is to raise funds for the business in order to move forward.

Businesses going public tend to expect high growth over the coming years, and require cash in order to carry out their strategy. Once completed, the public company becomes much more transparent as it is obliged to abide the rules and regulations of whatever stock exchange they have chosen to list on, requiring the firm to publish audited financial accounts and keep the market up to date with what’s happening with the business. IPO momentum building – Snap led the stampede in 2017.

  • Over 1600 IPOs were completed worldwide in 2017.

Rising 49% from the previous year and hitting the highest level seen since 2007.

  • Proceeds raised by the newly listed companies amounted to about $190 billion, 40% higher than 2016.

US exchanges remained top of the leader board, after the number of IPOs rose by 55% compared with 2016, and proceeds climbed 84%, with 174 IPOs raising $39.5 billion. The number of London IPOs in the year rose by 63% to over 100 for the first time since 2014, raising £14.8 billion to hit a three-year high to eclipse its European counterparts.

  • Snap, the owner of social media platform Snapchat, was the headline IPO in the US after raising $3.4 billion.

The UK welcomed Europe’s largest IPO of 2017 after Allied Irish Banks opted to dual-list in London and raise £3 billion. The bank has seen its share price stay comfortably above its offer price since listing in July.

Despite The Worldwide Pandemic The IPO Calendar For 2020 Looks Positive

The global outlook for IPOs in 2020 is bright, driven high company valuations and renewed appetite for cross-border IPOs – particularly in the US, London and one of the world’s other top IPO destinations. Covid19, upcoming US elections, oil prices, a new tax regime in the US, and the expectation of higher interest rates will all play a part in how markets perform this year and beyond.

The IPO market in the US remains attractive, and the number of domestic and foreign companies considering an IPO is increasing.

  • The technology and healthcare industries are expected to be key drivers of activity this year, and a number of big brands and high-profile stocks are expected to come to market.

In 2018, we finally saw the world’s largest oil company, Saudi Aramco, complete the biggest ever IPO.

Reports suggested the state-owned oil firm would raise $100 billion by floating 5% of the business to give it a valuation of $2 trillion – which would be more than double that of Apple, at the time the most valuable public company in the world. Saudi Arabian Oil Company (as it is now known) has a market value of over $6.5 TRILLION, surpassing the two second biggest companies Amazon and Apple.

What Is A Pre-IPO (PPO)?

Pre-IPO offerings are available only to a limited number of individuals, and are done in advance of an expected IPO.

Pre-IPO prices are generally much lower than they would be at the IPO.

The advantage to pre-IPO investors is that significant financial gains will be made if the stock sells for a higher price once it is available to the public.

Typically, these private investors in a pre-IPO placement are large private equity or hedge funds that are willing to buy a large stake in the company.

The size of the investment means the price paid for shares in a pre-IPO placement is usually less than the prospective IPO price.

The Caesars Story

Caesars Entertainment Corporation – Almost doubled in value on first day.

One fine example of outstanding ROI pre-IPO was in 2010 when Caesars Entertainment Corp (NASDAQ:CZR) nearly doubled in value on the first day of trading. Shares of casino operator Caesars Entertainment Corp. surged 71% in their first day of trading.

  • They opened at $9.00, jumped to $17.90 by midday and closed at $15.39.

In 2007, when Caesars was headquartered in Memphis and known as Harrah’s, Apollo Management Group and Texas Pacific Group paid $17.1 billion and assumed $12.4 billion in debt to take the company private and move it to Nevada.

When it first filed to go public in October 2010 as Harrah’s Entertainment Inc., the company planned to raise as much as $575 million. It scaled that back to $530 million, and then cancelled the proposal entirely, blaming market conditions.

The company restarted its IPO plans in November as the IPO market heated up again with several attention-getting tech offerings. At that point, it expected to raise about $50 million. Caesars said it would end up with net proceeds of $13.1 million selling the 1.8 million shares for $9, after deducting bank fees and other expenses. It had planned to use the funds for general purposes, including development.

  • Caesars owns or manages more than 50 casinos.
  • The company now trades under the ticker symbol CZR and a market capitalisation of over $7 billion.
FOUR HISTORICAL IPO EXAMPLES

Here is a mixed bag of well performing historic IPO examples during 2012.

1. Proto Labs (NASDAQ:PRLB)

Despite pricing above its expected range, this manufacturer of prototyping parts had shot up 144.5% since its February 23, 2012 debut, within the first year. More than half of its gains came in the stock’s first day of trading, when the shares soared by 81%. Market cap today over $3 billion.

PRLB price now: $120/share.

2. Guidewire Software (NASDAQ:GWRE)

One of 2012 first IPOs was one of its best. Shares of the enterprise software provider have increased 170% since the stock’s January 24, 2012 debut despite pricing above their expected range. At 169 times earnings and coming off its weakest earnings period of the year. Market cap today nearly $8 billion.

GWRE price now: $95/share.

3. ServiceNow (NASDAQ:NOW)

ServiceNow was one of the first technology companies to go public after Facebook (FB). It even had the same banker, Morgan Stanley. But its debut couldn’t have been more different: It popped big on Day One, soaring nearly 37%.

Date of IPO: June 29, 2012, IPO price: $18, Shares offered: 11.6 million ServiceNow offers a cloud service that helps IT professionals keep their servers and networks up and running. It shocked the tech world with an initial market cap of nearly $2 billion. Market cap today $73 billion.

NOW price now: $390/share.

4. Splunk (NASDAQ:SPLK)

The first big-data success story

Date of IPO: April 19, 2012
IPO price: $17.00
Shares offered: 13.5 million

Splunk was the first big-data company to go public. Investors jumped on the chance to bet on this tech megatrend, which looks at the new technologies and services required to tackle massive data stores. Splunk’sIPO was so hot that trading was stopped on its opening day for a while—but that brief suspension was nothing like the technical mess that fouled up Facebook trading. Enthusiasm has cooled, but the stock is still healthy. Market cap today $25 billion.

SPLK price today: $160/share

IN CONCLUSION:

In the days of dotcom mania, investors would throw money into an IPO and be guaranteed killer returns.

Some people who had the foresight to get in on some of these companies made investing look way too easy.

Finding a good IPO however is difficult. IPOs have facets that make them different from the average stock which has been trading for a while. If you invest in an IPO, objective research is key.

Getting information on companies set to go public is tough, however at Weybridge Assets our analysts & researchers publish advance news via our Media Centre. Unlike most publicly traded companies, private companies do not have swarms of analysts covering them. Remember that although most companies disclose all information in their prospectus, further fundamental research and analysis are critical.

  • Weybridge Assets research & analysis conduct due diligence and publish reports pre-IPO if they feel something explosive is about to happen in the markets.
  • Just keep in mind that when it comes to dealing with the IPO market, an informed investor is likely to perform much better than one who is not.

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