Initial Public Offerings Paper
Thomas Belton, Dean Wilhelm, Ernest Williams
Finance for Business FIN/370
One of the most important assets to a company is the Banker and Underwriter. An organization that mandates the raising of the working capital from the public must acquire a bank that handles investments. The method of Underwriting is how the organization can raise money by financing or even debt. These Underwriters are the middle party of the investments. They control the exchange between the investors and the firm that the transaction is taking place. The two will create and enter into a contract at the end of negotiations. Most banks have reputable investment brokers that can help guide a client in the right direction when deciding how to invest their money. This broker is simply another third party to the transaction and is not actually the one submitting the purchase or investment into the securities. The offering price of an initial public (IPO) is the official opening price at which shares of a company that is going public are issued at. Institutional traders and select members of the syndicate firm are asked to put in an order of interest. Prior to the opening, orders of interest are gathered to pre-sell at an estimated price range. According to Investopedia, “valuing an IPO is no different than valuing an existing public company. Consider the cash flows, balance sheet and profitability of the business in relation to the price paid for the company.” While the fundamentals are important to consider, one unique factor of an IPO is the marketability and future growth of a company also play an important role in pricing. On the opening day of trading the estimated price is set prior to or shortly after the market open. An issue is considered “hot” if it is difficult to obtain shares premarket or if the price is expected to significantly increase above the IPO/opening price. A cold...
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