AFM373 Lecture Notes - Lecture 10: Capital Structure, Cash Flow, Making Money
3 Jul 2018
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Department
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Professor
Ferrari IPO
Going public
Why? What are the usual considerations, costs and benefits, pros and cons, for a private
company to consider going public?
Reasons to go public?
Raises capital, in this case the money raised isn't for Ferrari but towards FCA.
Exit opportunity for FCA
Listed on exchange (NYSE), able to target people who just want to focus on Ferrari
shares.
Gives liquidity - for shareholders to sell their stocks
Able to issue Ferrari shares/stock options to employee
oWe could just give FCA stock to Ferrari employees but the price isn't fairly
representing Ferrari only because FCA has other portfolios.
Marketing differentiation to separate Ferrari which is more of a luxury product from the
other FCA non-luxury automobiles.
The IPO is not for the money but it’s the first step to spin off Ferrari from FCA. How else
is it making money?
oJust being individual and independent.
oBeing apart there's focus. Managers can be compensated properly. The market
and ask for exactly what they want.
Publicity/reputation
Wait until the next equity issuance (seasonal issuance) which is way bigger than an IPO with the
advantage of knowing the share price.
Go on roadshows to ask investors how much they would buy at certain price. This is called
building a book. Investors can back out of it. I may make another call in the future asking if they
want to re-evaluate their choices.
I guarantee the price and I call up the investors on the books to let them know the price is set
and they confirm how many shares they will buy. This is called underwriting
Then on the first day, the market determines the price. If the price on the market go up to $70
when I sold it to investors for $50, I left some money on the table. There's a slight regret but as
this is an IPO, it is only a small portion of the firm (e.g. 10%), so I still have the other 90% of the
firms which I know the value per share is $70 so its good. This is why we never have a massive
IPO.
Valuation: using “market multiples”
TEV/EBITDA= Market value per dollar of EBITDA.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Raises capital, in this case the money raised isn"t for ferrari but towards fca. Listed on exchange (nyse), able to target people who just want to focus on ferrari shares. Gives liquidity - for shareholders to sell their stocks. Able to issue ferrari shares/stock options to employee: we could just give fca stock to ferrari employees but the price isn"t fairly representing ferrari only because fca has other portfolios. Marketing differentiation to separate ferrari which is more of a luxury product from the other fca non-luxury automobiles. The ipo is not for the money but it"s the first step to spin off ferrari from fca. Just being individual and independent: being apart there"s focus. The market and ask for exactly what they want. Wait until the next equity issuance (seasonal issuance) which is way bigger than an ipo with the advantage of knowing the share price. Go on roadshows to ask investors how much they would buy at certain price.
