overview
landmarks
terms
related
Guides:
eCapital
Economy
related
Profiles:
Benchmarks
telecoms
bubble
telco
privatisations
telco
mergers &
acquisitions
private
equity
|
terms
This page considers selected IPO terms.
Other investment and innovation funding terms, particularly
regarding venture capital, are explained here.
Aftermarket
Trading of an offering on or after the listing date.
Allocation
The number of shares given to a client from an offering.
Beauty Contest
Investment banks compete for the issuing company's IPO
business during a process known as the 'beauty contest'
(or 'bake-off'), in which they present their credentials
to its board and assess a preliminary valuation of the
company. If the issuing company is new and relatively
unknown, the banks often make valuations based on the
company's competitors.
The issuing company generally chooses an investment bank
based on that bank's underwriting experience (particularly
with IPOs in the same industry) and the credibility of
that bank's research analyst, who issues reports on the
company throughout the year.
Book building
During and after the road show, in a process known as
'book-building', the lead underwriter surveys potential
investors and notes interest in the stock so it can price
the IPO accordingly. The issuing company and the lead
underwriter meet to set both the 'offering price' and
the number of shares to be issued at the offering, based
on expected demand for the stock.
For the investment bank, the objective is to balance the
company's desire to price the stock so as to raise as
much money as possible and the investors' interest in
gaining some financial reward for the risk of investing
in an entity with an unproven public track record. Each
bank in the syndicate receives a certain number of shares
to allocate to its clients.
Buyer's Market
A market where buyers determine the price, usually because
of an oversupply of stock.
Closing Price
The final transaction price for a stock on a particular
day.
Co-Manager
An underwriter that assists with the distribution of a
offering.
Delisting
Removal of a company from trading on the stock exchange
(eg the NYSE or ASX), usually because of merger or insolvency.
Director
A statutory officeholder of a company who is responsible
for major decisions.
Demutualisation
A process whereby a mutual organisation turns itself into
a shareholder-owned company. Members of the mutual organisation
become the new shareholders.
Disclosure
The reporting of financial statements, management shareholdings
and other information that can be used for making investment
decisions.
Dividend
The amount of money distributed to shareholders out of
net profits, often twice yearly.
Due Diligence
The process of verifying information about a company,
including financial statements, management, market share,
legal matters and risks.
Escrow
An agreement whereby certain individuals and corporate
entities must retain stock and not sell for a given time.
Directors of newly listed company may have shares in escrow.
Float
A term used in Australia and other parts of the world
for raising capital through listing.
Going Public
The process of taking a private company (where the shares
are in private hands) and converting the ownership to
public hands (where shares are traded on the NYSE, ASX
or other stock exchange).
Green Shoe
An amount of shares that is reserved for issuing at the
original price at the underwriter's option. This is used
by the underwriter maintain an orderly market after listing.
Holding Company
A company that owns enough shares of another company to
secure voting control.
Index
A broad-based measurement of changes in stock market conditions
based on the average performance of widely held common
stocks. The US Standard & Poors 500 index for example
comprises companies with large market capitalisation that
operate across all important industry sectors. Some indexes
are sectoral, eg restricted to mining, oil or food/beverage
stocks
Initial Public Offering (IPO)
The first time a company offers its shares to the public.
Issue Price
The price at which a new security will be sold to the
public.
Lead Manager
The lead underwriter who, among other things, is in charge
of organising and distributing stock to the underwriters,
and making stabilizing transactions once the new issue
begins to trade.
Lead Underwriter
The underwriter that, among other activities, helps to
set the offering price and organises other underwriters
in selling a new issue.
Listing Rules
Requirements that all companies must follow for trading
on a particular exchange such as the NYSE or ASX. They
include disclosure of decisions that may affect the share
price. They typically also include a spread of share ownership.
Lockup period
The time during which company insiders (principally management
and venture capital investors)
are prohibited from selling their shares after listing.
US law for example mandates that the lockup period lasts
for 90 days after the stock is first publicly traded,
although this period is often extended to 180 days to
satisfy potential investors.
Market Capitalisation
The value that the market puts on a company, calculated
by multiplying the shares outstanding by the share price.
Money left on the table
The pop multiplied by the number of shares sold is known
as the 'money left on the table', ie money in the hands
of investors rather than held by the issuing company.
To balance the needs of the investor and the issuing company
the investment bank traditionally tries to price a deal
so that the first-day pop is about 15%, thereby rewarding
investors for gambling on a riskier investment while enabling
the issuing company to raise substantial capital.
New Issue
Shares offered for sale to the public for the first time.
Offering Date
The first day a security is publicly offered for sale.
Offering Price
The price for which a new security issue will be sold
to the public.
Official List
The register of public companies that trade on the ASX
or another exchange. Trade in selected companies on the
list is often used to form an index such as the FTSE,
Fortune 500 or Dow Jones.
Opening Premium
The difference between the opening price and offering
price, given that the difference is positive.
Outstanding Shares
The number of shares that have been issued by the company.
Oversubscribed
When the demand for shares in a new listing exceeds supply,
the issue is said to be oversubscribed and may result
in an opening premium.
Privatisation
The change of ownership of a company from government control
to private control. A discussion of issues and highlights
in the telecommunication sector are provided here.
Pipeline
The new issues that are due to go public within a given
timeframe.
Pop
The 'pop' - sometimes referred to as the first-day spike
- is the differential between the offering price of an
IPO stock and its closing price on the first day of trading.
During the dotcom bull market
of the late 1990s, with first-day gains reaching triple-digit
percentages, the pop became an important marketing event
for the issuing company.
Postponement
An offering that is pushed back to a later date. This
may lead to the offering being cancelled.
Privately Held
A company that is not listed on the stock market.
Private Placement
An investment in a company by a group of private investors.
Prospectus
A corporate document registered with a regulatory agency
such as the Australian Securities & Investment Commission
(ASIC) and the US Securities & Exchange Commission
(SEC) to provide prospective buyers with information about
the company's financial history, management, risks and
prospects. It outlines industry competition and other
risk factors that investors would want to know in advance.
The expectation is that the prospectus will provide all
of the information investors need to know in order to
decide whether to participate in the IPO and will ensure
that those issuing the prospectus take some responsibility.
Quiet period
The quiet period begins when a company files a preliminary
prospectus with a regulatory agency such as the SEC and
typically ends 25 days after the stock starts trading.
During this period the company is prohibited from distributing
any information about the company not included in the
prospectus.
Red Herring
A preliminary prospectus is often referred to as a 'red
herring' because of the red ink used on the front page,
indicating that some information (including the price
and size of the offering) is subject to change.
Risk Factors
Considerations that are disclosed in the prospectus that
might materially affect the company's financials, stock
price or reputation in a negative way.
Road Show
Formal presentations made by underwriters (usually to
institutional investors) to inform them of an issue. The
'road show' is a multi-city tour during which the company
pitches its business plan to potential investors, usually
institutional investors such as mutual funds, endowments,
or pension funds. The underwriter attempts to gauge the
level of interest in the IPO as a basis for a decision
on how to price the stock offering. In the US stops on
the tour typically include New York, Boston, Chicago,
San Francisco and Los Angeles. US IPOs of international
interest may also feature a road show to major centres
in Europe and Asia, eg London, Frankfurt, Paris and Tokyo.
Following the road show, the company prints its final
prospectus, distributes it to potential investors, and
files it with the pertinent regulatory agency/ies.
Safe Harbor
A feature of US securities law that excuses liability
if the attempt to comply in good faith can be demonstrated.
Safe harbour provisions encompass corporate information
that is released with future financial projections or
expectations of competitive performance. The term is also
used in privacy regimes.
Secondary Offering
When a public company issues additional shares to the
public.
Security
An investment instrument (other than an insurance policy
or fixed annuity) issued by a corporation as evidence
of debt or equity.
Seller's Market
A market where there is more demand than supply for a
security.
Selling Shareholders
Investors in a company who sell part or all of their stake
as part of that company's IPO.
Settlement Date
The date that securities must be paid for.
Shareholder
Any entity (eg an individual, philanthropic foundation
or investment fund) that owns shares of a company's stock.
Sponsoring Broker
The sponsoring broker manages - for a fee - the listing
process, from putting the prospectus together through
to marketing the float to the investment community. Unlike
an underwriter, a sponsoring broker does not take on any
of the risk that the issued shares are not fully taken
up by offering to buy the shortfall.
Stag
The practice of an entity receiving stock prior to listing
and selling that stock during the IPO.
An associated phenomenon, known as 'flipping', involves
an investor buying stock in an IPO at the offering price
and quickly selling it for a profit when it starts trading."
Though it became common during the dotcom bubble and previous
booms, this practice is ostensibly discouraged by underwriters,
who are looking for investors willing to make a long-term
commitment to the company. In practice such anti-flipping
policies often do not apply to large institutional clients
of investment banks.
Stock Exchange
The physical or virtual where brokers transact business
for their clients. Principal exchanges include the ASX
(Australia), NYSE (US), NASDAQ (US), AMEX (US), HKSE (Hong
Kong) and LSE (UK).
Supplementary Prospectus
An additional document filed with ASX or another body
that has additional information regarding the proposed
offering for the company.
Tranche
An allocation of shares, made to a particular region or
at a particular time.
Underwriter
A stockbroker or investment bank that sells shares in
a new issue to the public. The underwriter will profit
from the fees generated by the offering.
Use of Proceeds
How the company plans to use the monies it generated from
an IPO or Secondary.
Valuation
The measure of what a company expecting to come public
is worth.
Volatility
Movement in the price of a stock from its high and low.
Withdrawal
Withdrawal occurs when a company decides not to continue
with its proposed offering of securities. Withdrawal typically
signals difficulty in securing the interest of investors
but does not always signify trouble with the proposed
offering.
Withdrawal is sometimes characterised as 'cancellation'.
::
|
|
Ketupa