Ch14

Question 1

harvesting

Answer 1

process of exiting private venture to unlock investment value

Question 2

methods of havesting

Answer 2

• systematic distribution of assets
• M&A-outright sale of venture
• IPO-public equity registration and sale (two steps)

Question 3

systematic liquidation

Answer 3

liquidated by distributing cash flows to owner

Question 4

M&A

Answer 4

-outright sale to others

Question 5

leveraged buyout (LBO)

Answer 5

purchase of a firm largely financed by debt

Question 6

management buyout (MBO)

Answer 6

current management continues to run the show and holds substancial equity in firm

Question 7

employee stock ownership plan (ESOP)

Answer 7

• sell debt to fund equity for employees

- made possible by congress

Question 8

private placements

Answer 8

• firms and skip registration and sell directly to big boy investors (institutional/accredited)
• makes use of Reg D

Question 9

control premium

Answer 9

amount added to base value to reflect advantage in being majority shareholder

Question 10

illiquidity discount

Answer 10

discount applied to base value bc private equity hard to sell

Question 11

investment banking

Answer 11

• intermediary assisting in creation, sale and distribution of securities
• kings of determining value
• underwrite IPO issue

Question 12

underwriters

Answer 12

• determine method to issue security
• price security
• find buyers
• stabilize price

Question 13

underwriting spread

Answer 13

difference between what investment bankers get by selling securities and what they pay issuing company

Question 14

red herring disclaimer

Answer 14

disclaimer saying that you are not trying to sell this security

Question 15

due diligence

Answer 15

find out to best extent possible firms financial condition and intent

Question 16

strategic acquirer

Answer 16

someone who wants to buy out company

Question 17

control premium average

Answer 17

43%

Question 18

concerns of going public

Answer 18

cost and changes to operations will be significant

Question 19

dutch auction

Answer 19

accept bid/orders. price that everyone pays is price which results in targeted shares being sold

Question 20

IPO underpricing

Answer 20

• aka “leaving money on the table”
• syndicates/IB offering price less than market price after
• around 16%

Question 21

green shoe option

Answer 21

• “call option” given to underwriters

- allows underwriter to buy 15% more if the sales is popular

Question 22

lockup agreement

Answer 22

prevent private investors and employees from selling their shares, usually about 6 months. company stock usually declines over this period bc employees will want to sell more

Question 23

round lot

Answer 23

usually 100 shares of stock sold together

Question 24

syndicate

Answer 24

group of underwriters to help with sale. original underwriter is “lead”

Question 25

"all hands" meeting

Answer 25

6-8 weeks to file registration statement

Question 26

SEC review

Answer 26

- usually takes 1-4 months | - 20 day "cooling off" minimum period

Question 27

SEC registration documents

Answer 27

- prospectus | - registration statement (S-1 doc see EDGAR)

Question 28

red herring document

Answer 28

- these docs are not finished under SEC review | - not intended as offer yet

Question 29

road show

Answer 29

-underwriter trys to figure out demand from big boy investors before SEC approval

Question 30

book building

Answer 30

lead underwriter tryies to figure out demand

Question 31

aftermarket support

Answer 31

actions of underwriters to help support stock price after offering

Question 32

market order

Answer 32

execute order as soon as posible

Question 33

limit order

Answer 33

order that can only be done at specific price or lower

Question 34

stop order

Answer 34

converts to market order once price is acheived

Question 35

tombstone ad

Answer 35

advertise IPO and underwriters