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Flashcards in Capital Markets - Equity Capital Market Deck (16):
1

Why would a company need to go public?

Short answer is they need money (financial resources) for their growth

2

What a listing does for a company?

It brings reputation and visibility

3

Who are the investors in an IPO

Retail Investors, Institutional Investors and Hedge Funds

4

Who are institutional investors?

Entities like mutual and pension funds and insurance companies

5

How do the different type of investors differ?

They differ in investment horizon, return expectations, risk profile

6

What are general characteristics of a company that the investors look for in an IPO?

strong company with market leadership, strong management, solid financial position and high level of visibility and disclosure

7

what's the investment horizon for a hedge fund company?

It's very short and they will dump the stock as soon as they can

8

How long does a typical IPO process last?

It lasts between 4 and 6 months

9

What's the goal of a price setting in an IPO

Key goal is to provide a slight discount to the value of the company

10

What's the main technique used to determine the company's price

DCF - Discounted Cash Flow technique

11

What's DCF

It's calculating the present value of all cash flows that the company will deliver to its owner

12

What's the basis for DCF

Historical results and the business plan prepared by the management team of the company

13

What's book building?

Book building is the process of identifying the right price point for the shares. The investment banks receives feedback from the investors of their willingness to pay for the shares at different price points. Institutional investors can tell the Investment Bank, how many IPO-ed shares that they will buy and at what price point.

14

What's a roadshow?

Investment Bank and Company's top management meet with the key investors and institutions and try to win their support for the listing

15

Steps involved in an IPO?

a) Company hires an investment bank and advisors b) Investment bank applies various models and techniques to derive the pricing c) Investment bank starts the book building process which also includes the roadshows d) Comply with all regulatory requirements e) Listing of the company shares in the exchange f) Trading of the shares in the exchange

16

To whom the equity is offered in the private placement?

Institutional investor