Module 1 CASE
FIN501 - Strategic Corporate Finance
Professor Dr. Glenn Tenney
Introduction - AVG'S IPO Initial public offering (IPO) is when a company who goes public and becomes available to stock investors to purchase rights to the the company. The company owner must decide what market they want their company to go public on i.e.; NYSE. Companies like AVG, a technology online company - seeking to enhance their companies "growth "by keeping up with technology and wishes to create revenue to do so, is a prime example of why a company would go public. The ability to lower "borrowing" interest rates and increasing notoriety is a major plus for IPO's. However, determining if a traditional or non-traditional IPO method is appropriate for companies going public like AVG is something to consider. Fung (2011) AVG (2012)
AVG Goes Traditional: Advantages vs. Disadvantages
AVG Technology from the Neverlands has "143 million users" with 43 Million paying members online and desired to enhance their company financially & popularity. In 2011 AVG went public and AVG is currently listed on the NYSE with stocks being quoted at $15.72 a share. AVG was likely to attract investors familiar within the online technology industry. AVG may have benefited much more from an online auction IPO, because; they are a smaller on-line competitor anti-virus company and would have attracted more initial investors with the more untraditional IPO. The traditional IPO's initial fees & cost alone for underwriting was a disadvantage for AVG. However, the traditional method gave the company what they needed as far as recognition and profiting from the "search leads" with their relationship with Google. The fact is since its IPO the company's stocks initial opening price has not risen above opening price. Forbes (2012) Clinton (2011) AVG (2011)
●The lessons learned from Google and Morningstar from their auction IPOs
Costs for companies going public ate usually quite significant
Cost of Going Public
The costs for a company to take their company public is quite significant when initiating an IPO. A typical underwriter will receive a ratio of 5%-7% of initial proceeds from sale of stocks. Plus other fees an under writer incurs while preparing for the IPO. Companies can incur up to 4 Million dollars in IPO related costs. Maintaining the public company could cost a company a $1,500,000.00. PWC (2012)
Risks vs. Pro's of an IPO When a company goes public, they risk of losing complete "control" of their company. It Leaves them open to scrutiny and public accountability. The unpredictability of the success of the stock is a risk. Lastly, investor interest and market or industry value stability. The upside for most IPO pursuers is that financial gains fir growth are not a loan as they would need to take if remained private. Arkebauer (2012).
Series to go Public
1. Is it a good time to go public? Create a plan and examine the company's needs and goals.
2. Determining and picking Underwriters
3. File a prospectus with the U.S. Securities and Exchange Commission that includes the company's financial History
4. Promote the Company - The "Road Show" is where under writers get wealthy investors to buy first.
5. Set Prices and last minute decisions like when to start selling and how much.
6. Sell Stocks on Stock Market Wassermen (2010) Investopedia (2011)
This module built a good beginning in establishing a solid foundation of learning IPO's. Learning about Traditional and non-traditional IPO's such as; online auctions, was informative. Understanding why companies go public and risks involved further reiterates why good research before going public is essential. Lastly, even a successful company must consider the cost of proceeding with an IPO as the cost is quite high.