Course Number: FIN501
Module 1 Case Assignment
Upon deciding to go public, a company looks into preparing an initial public offering (IPO). There are two IPOs with which a company can utilize: a traditional IPO or the relatively new Auction-based IPO that was made popular by Google. Avaya is currently planning for IPO. “Avaya is a global leader in business communications systems. The company provides unified communications, contact centers, data solutions and related services directly and through its channel partners to leading businesses and organizations around the world” (Avaya.com, 2011). Avaya’s current plan of an IPO valued at approximately $1 billion (Klassen, 2011) needs to consider whether to go with a traditional IPO or Auction-based IPO. While Google and Morningstar had success with Auction-based IPOs, due to a lack of investor knowledge into the value of the company Avaya should conclude on a traditional IPO. Advantages, Costs and Risks of Each Type of IPO
When a company choses to go with a traditional IPO, they hire an investment bank to underwrite, or “the process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt)” (Investopedia.com, 2011), the IPO. Once a bank has been chosen to underwrite the IPO, the company and bank research a likely market value of the company. Then based on this research and amount of capital the company is looking to raise in the IPO, the company and bank determine the number of shares to be offered as well as the price of each share. The price determined here is commonly reduced from the true market value the company and investment bank estimated it will be. Next is the road show tour where the offering is presented to large investors, normally the investment bank’s top clients which include institutional investors or wealthy individuals. Those who are interested in...
Please join StudyMode to read the full document