Finance
Bfh
Ch_132019.pptxChapter 13 Harvesting
Administrator (A) - fix this to all upper
Learning Objectives
Understand how early-stage investors can harvest by going public
Describe the investment banker’s role in the IPO process, including the due-diligence, certification, and marketing functions
Explain how an underwriter values a new issue and how the valuation evolves as the offering date approaches
Describe how private acquisition transactions can be structured and identify factors that affect the choice of structure
Understand when and why an entrepreneur might decide to undertake a management buy-out
Understand how an ESOP creates liquidity for owners of a non-public business and how a leveraged ESOP works
Describe how roll-up IPOs enable small companies to go public
Identify factors that affect the choice of harvesting alternatives
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Harvesting Alternatives
Initial public offering (IPO)
Private sale (M&A)
Management buy out (MBO)
Roll-up IPO
Sale of the business to employees (ESOP)
Continuing to operate the venture
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Public Offerings — Some Terminology
IPO (Initial Public Offering)
The first time company shares are sold to investors in a public offering
Can be primary, secondary, or combined offering
Primary Offering
Sale of newly issued shares by the company
Can be initial or seasoned offering
Secondary Offering
Sale of shares by existing investors
A means of harvesting, does not yield capital for the firm
Seasoned Offering
Public venture raises capital by issuing additional new shares
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Ways Equity Investors Can Harvest
Secondary sale as part of the IPO. Existing investors sell previously issued shares as part of an IPO
Sale in the secondary market. After a public market has been established, early investors can sell small amounts of shares from time to time directly into the public market (SEC Rule 144)
Seasoned offerings of secondary shares. After a company goes public, existing investors can sell larger quantities of shares in a formal secondary public offering after the IPO
Private placement of secondary shares. Investors can make a private sale of shares of public or private companies to other investors, the entrepreneur, or the company. Usually to accredited investors and qualified institutional buyers
Approaches to Public Offering
Firm commitment general cash offering
Underwriter commits to buy all shares issued at the net offering price
Best-efforts basis
The investment banker acts more like an agent of the issuer and does not guarantee net proceeds
Rights offering
The issuer raises equity by issuing warrants to existing shareholders, which are tradable call options
The IPO Process: Selecting the Underwriter
The “bake-off” or “beauty contest”
Matching the underwriter’s capabilities with the issuer’s specific interests and objectives (e.g., retail v. institutional investors, aftermarket analyst coverage)
Underwriter duties
Due diligence
Certification
Issue pricing
Syndication
Distribution
Market making
The IPO Process: Due Diligence and Issue Pricing
Underwriter is the intermediary between the informed issuer and uninformed investors
Due diligence and the prospectus can mitigate the information asymmetry
Establishing the offer price also addresses the information disparity
Investors can rely on the offer price as a conservative estimate of the value of the shares compared to other firms/transactions
The reputations of underwriters and VCs can act to “certify” that the IPO value is consistent with prevailing market prices
IPO Pricing Process for Firm Commitment Underwriting
Figure 13.1
-- Figure 13.1 --
IPO issue pricing process for a firm commitment underwriting
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The IPO Process: Cost
Going public is expensive
Underwriter fee: 5-7% of proceeds
Direct issuing cost: 1-5% of proceeds
Underpricing: 15-18% of proceeds
Total: 21-30% of gross proceeds
22-32% of net proceeds
The IPO Process: Cost
Underpricing (measured as initial return) is usually the most important component of total cost
Second is the “underwriter spread” or fee
In a general cash offer, the underwriter buys the shares from the issuer for a negotiated net price and tries to resell at the offer price
The difference between offer price and net price is the spread
Direct costs are out of pocket costs incurred by the issuer for lawyers, accountants, filing fees, etc.
Average IPO Underpricing (Initial Return) by Year
Figure 13.2
-- Figure 13.2 –
Average IPO underpricing by year (measured as initial return)
The figure shows equal-weighted and proceeds-weighted annual averages of IPO underpricing where underpricing is measured as the initial return from the offer price to the first aftermarket closing price. Data are from https://site.warrington.ufl.edu/ritter/ipo-data/.
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Average IPO Underwriter Spread by Year
Figure 13.3
-- Figure 13.3 –
Average IPO underwriter spread by year
The figure shows equal-weighted and proceeds-weighted annual averages of IPO underwriter spreads where the spread is measured as the difference between gross and net proceeds, expressed as a percentage of gross proceeds. Data are from https://site.warrington.ufl.edu/ritter/ipo-data/.
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IPO Direct Costs and Underwriter Spread by Issue Size
| Issue size | Total direct cost |
| (proceeds in $ millions) | (% of proceeds) |
| 2.0–9.99 | 17.0 |
| 10.0–19.99 | 11.6 |
| 20.0–39.99 | 9.7 |
| 40.0–59.99 | 8.7 |
| 60.0–79.99 | 8.2 |
| 80.0–99.99 | 7.9 |
| 100.0–199.99 | 7.1 |
| 200.0–499.99 | 6.5 |
| 500.0 and up | 5.7 |
| The cost of a public offering includes three components: the spread between the offer price and net proceeds to the issuer, issue costs borne directly by the issuing firm, and underpricing. This table provides estimates of the first two components (excluding underpricing) for different sizes of issues. |
Table 13.1
-- Table 13.1 –
IPO direct costs and underwriter spread by issue size
Source: I. Lee, S. Lochhead, J. Ritter, and Q. Zhao, “The Cost of Raising Capital,” Journal of Financial Research 19 (1996): 59–74, Table 1.
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Why Are IPOS So Expensive?
Significant fixed costs
Prospectus
Due diligence cost
Costs the underwriter incurs to market the issue
The underwriter’s exposure to risk after the IPO
Would auctioning be better?
OpenIPO
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Puzzles Raised by Underpricing and Underwriter Spreads
What explains underpricing?
Would auctions be better (i.e., reduce underpricing)?
Why do spreads in the U.S. tend to be uniform (i.e., 7%)?
Why are average spreads smaller in other developed countries than in the U.S.?
(The book reviews research on these topics and findings)
Methods of Valuation and Pricing of IPOs
Estimate enterprise value on a pre-money basis (excluding the IPO proceeds)
Estimates can be based on the market values of comparables, prices of recent IPOs, or other transactions, or fundamentals
Deduct the value of debt financing
Residual equity is divided by number of shares to get value per share
Methods of Valuation and Pricing of IPOs
Example
An issuer hopes to raise $20M in net proceeds (net of spread and underpricing)
The underwriter estimates that the market value of equity is $10 per share
The underwriter targets 15% underpricing, so the venture would issue shares issues at $8.50 (gross proceeds)
The net price after a spread of 10% of gross proceeds would equal $7.65. ($8.50 x 90%)
Methods of Valuation and Pricing of IPOs
Example, cont.:
Given the target of $20M in net proceeds, the firm would issue 2.614 million shares ($20M/$7.65)
Depending on take down due diligence and market conditions, the underwriter may decide on a lower or higher issue price and sell shares of sufficient quantity to deliver the $20M net proceeds
Methods of Valuation and Pricing: Overallotment Options
Overallotment (Green Shoe) options
Allows the underwriter to offer additional shares if demand is higher than anticipated
Allows the underwriter to offer additional shares, anticipating that some investors may not honor their commitments to buy or may “flip” their shares, which would depress the price
In the U.S., the option can be up to 15% of original number of shares offered, thereby affecting supply of shares and the aftermarket price
Cost of Harvesting an IPO by Going Public
IPOs usually involves a small fraction of total shares
Selling shareholders normally harvest in the aftermarket
Existing shareholders implicitly bear the cost of the IPO
Percentage cost of IPO is less important than percentage cost of creating a public market for the shares
Cost of Harvesting an IPO by going Public
Example:
A venture seeks $30M in net proceeds
The investment bank estimates pre-money value at $120M
The target aftermarket value is $30.00 per share, implying that after the IP0 there should be 5M shares outstanding:
$120 M in pre-money + $30 M in net new proceeds=$150M
$150M/$30.00 per share= 5M shares
Cost of Harvesting an IPO by Going Public
Example, cont.:
The underwriter targets 15% underpricing compared to projected aftermarket value
So, the IPO will be priced at $25.50 per share ($30-$4.50)
The underwriter fee is 7% of the $25.50 issue price.
So the issuer nets $23.715 per share: $25.50 - .07($25.50)
To generate $30 MM the firm plans to sell 1.265 MM shares
1.265 MM = $30 MM/$23.715
Existing shareholders (VC, entrepreneur, angels) retain the balance of 3.735 MM shares
1.265 MM + 3.735 MM = 5 MM shares
Cost of Harvesting an IPO by Going Public
Example, cont.:
Estimated cost:
Total cost: total cost per share: $6.285 = ($30.00-$23.715)
$6.285 x 1.265 MM new shares issued = $7.95 MM
Percentage cost: View the total cost of $7.95 MM as the cost of harvesting the pre-money value of $120 MM
Then the cost is 6.625% = $7.95 MM/$120 MM
Cost can be thought of as the cost of creating a public market for the shares
Approaches to Public Offering
Firm commitment general cash offering
Underwriter commits to buy all shares issued at the net offering price
Best-efforts basis
The investment banker acts more like an agent of the issuer and does not guarantee net proceeds
Rights offering
The issuer raises equity by issuing warrants to existing shareholders, which are tradable call options
Administrator (A) - we might want to move this down--check text
Approaches to Public Offering: Rights Offerings
Rights offerings are more common outside in the U.S.
Existing investors receive (preemptive) rights to buy new shares
Rights are tradable warrants that give the investor the right to buy new shares at a pre-specified price, plus a certain number of warrants
An existing shareholder can either exercise the rights or sell them to others
Assuming each new share requires five warrants, the price of a new share is the exercise price plus the market value of five warrants
The issuing firm receives the exercise price
Existing shareholders receive the market value of the warrants
Approaches to Public Offering: Rights Offerings
Example: Rights Offerings
The company announces a rights offer that will increase the number of outstanding shares by 20%
The company issues warrants to existing shareholders, one warrant for each outstanding share
Warrants give shareholder the ability to buy new shares at $15 plus 5 warrants
The 5 to 1 ratio results in a 20% increase in shares
Approaches to Public Offering: Rights Offerings
Example, cont.:
Suppose this is a publicly traded company with shares trading on the exchange for $20 per share
On the rights offering date, the market price is expected to fall relative to $20 to reflect the discounted shares coming on the market at $15 + 5 warrants
Approaches to Public Offering: Rights Offerings
Example cont.:
The warrants are tradable on the same exchange as the company stock
The expected effect on share price:
Before the offering, based the market price, 5 shares would have a total vale of $100
After the offering 6 shares would have a value of $115 ($100 plus an additional $15 share)
The new value per share is $115/6 or $19.167 per share
Since the investor can either exercise the rights by paying $15 and 5 warrants, or sell the warrants, and since new share value will be $19.167, the price per warrant should be $0.833/5 or $0.167
Approaches to Public Offering: Rights Offerings
Example, cont.:
Suppose the issuer is a privately held venture
The price per share on Sharespost.com and other private equity trading sites is around $20 per share
If rights are transferrable, they will also trade over-the-counter
On the rights offering date, the price in private transactions is expected to fall relative to $20 to reflect the discounted shares coming on the market at $15 + warrant
Warrants are expected to transfer at $0.167, just as for a public company
A firm that seeks to go public and raise capital can register existing shares by direct listing and then do a rights issue
Approaches to Public Offering: Rights Offerings
Rights offerings take longer than a general cash offer or private placement
Rights offerings also can limit the implicit certification by an underwriter since the underwriter does not estimate the issue price as in a general cash offer
An additional problem is shareholders may fail to exercise or sell warrants
The ultimate shareholders of a public company may be difficult to identify and may not learn of the rights offering
Other Approaches to Public Offerings: Auctions
Auction method
In theory, auction methods have the potential to eliminate underpricing
With general cash offerings, if there is excess demand, the underwriter can respond by rationing shares and may favor preferred customers: those who are expected to refrain from “flipping” shares or those who may be sources of future business (“spinning”)
In a clean auction method offering, IPO shares go to the highest bidders
But most auction-method offerings are “dirty,” with the offer price set below the market clearing bid, so that rationing still occurs
Other Approaches to Public Offerings: Auction
Auction methods have been tried in a number of countries
In the U.S., W. R. Hambrecht originated the Open IPO where bidders submit bid prices and quantities they are willing to buy to the underwriter via an Internet site
In a clean single-price auction, demand information is matched with the quantity of shares available and the market clearing price is found
All bidders whose orders are accepted pay the same price, even if they bid higher
In a dirty single-price auction, the offer price is set lower to protect against investor fail to purchase and to enable the underwriter to allocate some shares to preferred purchasers
Other Approaches to Public Offerings: Auction
Examples: Ravenwood Winery (1999), Google (2004)
While some auction method IPOs appear to reduce or eliminate underpricing, data indicate that underpricing is not eliminated
Even without underpricing, investors may not have the information to accurately price the security
An auction method can give rise to adverse selection – investors with winning bids can pay too much
Fearing adverse selection, investors may bid too little
The underwriter may be less able to certify the price
In Japan, when both auction and bookbuilding (general cash offering) were available, bookbuilding was the clear winner
Except in emerging economies with thin markets and little institutional investing, auction is rarely observed
Other Approaches to Public Offerings: Reverse Merger
Reverse Merger(Reverse IPO)
An public company (shell) acquires shares of a private company and then may change its name to that of the private company
The acquisition can occur with an exchange of shares (no cash)
This approach does not require an underwriter, does not incur the costs of an IPO, and can be done quickly
This is not a capital raising approach, but enables eventual harvesting by existing investors
There is no certification of value, no analyst following, etc. so market cap may be lower than if an IPO were used
Other Approaches to Public Offerings: Direct Listing
Direct Public Listing
An alternative to traditional IPO in which shares held privately by existing shareholders are registered for public market trading
The firm issues no new shares and may not engage an underwriter
Shareholders can then harvest by selling their shares in a public market
Example: Spotify
Other Approaches to Public Offerings: Direct Public Offering
Direct Public Offering
The SEC consolidated its exemptions for small and private offerings into Regulation D (“Reg D”), subsequently modified by the JOBS Act
Reg D contains several exemptions from the federal registration requirements, and thereby facilitates private placements of equity
Rule 504: Companies can sell up to $1 million of their securities to “accredited investors” in any 12-month period without registration (largely superseded)
Rule 505: Companies can sell, without registration, up to $5 million of their securities in any 12-month period to an unlimited number of accredited investors and up to 35 other persons. Investors receive “restricted securities”
Rule 506: Companies can raise an unlimited amount of capital without registration, provided they sell only to accredited investors
Regulation Crowdfunding (added in 2016 with JOBS Act): Covers offerings up to $1,000,000 (adjusting up with inflation) through an SEC-registered online platform
Harvesting in the IPO
It is common for investors and founders not to sell shares during the IPO
Their shares may “locked up” for up to 180 days after the IPO
After the lock-up period, there are several ways to harvest:
Rule 144 sale: gradual sale of shares to the market
Investors can arrange a large private transaction
It is more common for existing shareholders to participate in an SEO
Acquisition
Exchange modes
equity for cash
assets for cash
equity or assets for equity
Valuation
Choice of public or private sale
Acquisition—Equity for Cash
Buyer acquires assets and assumes liabilities
Due diligence, representations and warranties can reduce information asymmetry and bring valuations closer
Good for VCs/investors
Immediate liquidity which is easily distributed
No adverse tax impact
May not be good for entrepreneurs/founders
Potentially large tax impact
May end the entrepreneur’s involvement
Risky for buyer
Trading a safe asset (cash) for the acquired risky assets
Increase in leverage if the cash is borrowed
Acquisition—Assets for Cash
Buyer can target only the desired assets for acquisition
Buyer avoids responsibility for liabilities and unattractive capital structure, e.g., target is in financial distress
Cash price to seller will be higher without the buyer assuming the liabilities
Acquisition—Equity or Assets for Stock
Requires due diligence on both sides since the seller is getting a risky asset (the acquirer’s shares) as payment
The acquirer avoids time/cost of raising financing
May allow the seller to postpone tax liability
Issues with a private acquirer
no “market value” for shares
non-traded shares may not provide liquidity
After the Acquisition
Buyer may seek to retain key managers
employment agreements
incentives and equity (restricted shares or options)
non-compete agreements and earn-ups
Agreeing to disagree
due diligence, representations and warranties
earn-out provisions to make value contingent on future performance
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Valuing Private Transactions
Motivation for studying exit by private sale:
Private markets are finding ways to provide liquidity to large firms so that firm can avoid going public or stay private longer
Both private equity and debt are growing in importance
What can explain high valuations of private firms (e.g., unicorns valued at $1B or more)?
Gornall and Strebulaev (2017) study unicorns and find valuations based on the last round of funding (using preferred shares) tend to over-value common shares by 45%, on average
Valuing Private Transactions
How much is a venture worth in a private transaction?
Considerations:
Opportunity cost—next best alternative use value, e.g., the next best use for a company going public is its worth to a corporate acquirer
Transactions costs—the costs of arranging a private sale, including any illiquidity discount
Non cash (stock) vs cash—if the consideration is stock and if it is restricted, then the entrepreneur will remain underdiversified
Who captures synergistic gains from an acquisition?
The seller can expect to capture more of the gain if the assets are unique and if there is competition to acquire the assets
Valuing Private Transactions
Hertzel and Smith (1993) findings based on a sample of private placements of equity by public companies:
On average, private transaction shares are priced 20.1% below public shares
Discounts are larger for smaller firms, when small amounts are raised, and when a placement is large relative to firm size
Discounts are larger when uncertainty about value is high, such as when a firm is involved in speculative product or is in financial distress
These discounts are still low compared to the total issue cost of an IPO
Private Placement Discounts Compared to Market Value
| Variable | Mean discount | Variable | Mean discount | |||
| Proceeds (millions) | Market value of equity (millions) | |||||
| < $1.0 | 43.7% | < $10.0 | 34.60% | |||
| $1.0 - $5.0 | 33.1% | $10.0 - $25.0 | 35.60% | |||
| $5.0 - $10.0 | 15.1% | $25.0 - $75.0 | 17.20% | |||
| $10.0 - $20.0 | 10.1% | > $75.0 | 7.60% | |||
| > $20.0 | 0.2% | |||||
| Single investor | ||||||
| Book-to-market equity ratio | Yes | 11.70% | ||||
| <0.1 | 31.3% | No | 23.30% | |||
| 0.1 - 0.4 | 25.0% | |||||
| 0.4 - 0.7 | 21.9% | Speculative product | ||||
| 0.7 - 1.0 | 5.0% | Yes | 32.20% | |||
| 1.0 | 3.3% | No | 14.70% | |||
| Financial distress | ||||||
| Yes | 34.80% | |||||
| No | 16.50% |
Table 13.2
-- Table 13.2 –
Private placement discounts compared to equity market value
Note: Although the study uses data from private placements of public companies, the findings capture many of the qualitative considerations that are likely to affect the costs an acquirer would incur in acquiring a private venture.
Source: Hertzel and Smith (1993)
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Illustration: Estimating the Cost of a Private Transaction
A biotech venture is generating revenue but is not profitable
Book assets equal $5M and no debt
Based on public comps, market value is around $20M
Table 13.2 (“proceeds” panel) suggests an acquisition price of about $18 M, (a discount of 10.1%)
Book-to-market equity ratio of 0.25 suggests an acquisition price of $15M (25% discount)
The market value estimate of $20M suggests an acquisition price of about $13M (discount of 35.6%)
Management Buy-Out (MBO)
A harvesting event is critical to VCs and other outside investors; it may be less important for the entrepreneur/founders
An MBO might be a response to investor insistence on exercising demand registration rights or to an acquisition bid
MBOs are usually financed with debt
venture cash flows must be sufficient to service the debt
Valuing Management Buy-out Transactions
Buyer (the management team) knows most things that are possible to know about the venture
due diligence can be completed quickly and at lower cost
Entrepreneur may place subjective value on continuing to run the business
These costs savings/benefits may be offset by the opportunity cost of the entrepreneur and management team continuing to be underdiversified
Structure of a Private Leveraged ESOP
Entrepreneur may have little desire or need for harvesting
ESOP creates liquidity by establishing an internal market for a venture’s shares
Provide cash flow to entrepreneur
Help with estate/tax planning
Provide employee compensation
Leveraged versus unleveraged ESOP
Structure of a private leveraged ESOP
Figure 13.4
-- Figure 13.4 --
Structure of a private leveraged ESOP
Black arrows designate flow of shares; grey arrows designate flow of cash; dashed arrows are other flows.
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Structure of a private leveraged ESOP
Figure 13.4
-- Figure 13.4 --
Structure of a private leveraged ESOP
Black arrows designate flow of shares; grey arrows designate flow of cash; dashed arrows are other flows.
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Structure of a private leveraged ESOP
Figure 13.4
-- Figure 13.4 --
Structure of a private leveraged ESOP
Black arrows designate flow of shares; grey arrows designate flow of cash; dashed arrows are other flows.
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Roll-Up IPO
A company too small to go public alone combines with others to create an organization large enough to make efficient use of the public offering process
similar firms
usually profitable
IPO based on consolidated financial statements
Examples
Blockbuster (video tape rental)
Waste Management (trash collection)
Roll-up IPO
Figure 13.5
-- Figure 13.5 --
Roll-up IPO
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The Harvesting Decision
Factors that bear on the exit decision
Company size
The value of a public market for the shares
Synergies with prospective acquirers
Track record and ease of valuation
Timing
Ownership and control implications
Taxes
Transactions costs
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The Harvesting Decision
Company size
IPO is more effective for large firms
Small firms may achieve liquidity by acquisition
The value of a public market for the shares
Disclosure and reporting requirements
As a currency for acquisitions and compensation
Increased awareness of company’s products/image enhancement
Provides flexibility over harvest timing
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The Harvesting Decision
Synergies with prospective acquirers
Being public may allow entrepreneur and investors to capture more value
Track record and ease of valuation
Public investors may not provide the best valuation for new and volatile ventures
Timing
IPO volume is highly sensitive to market conditions
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The Harvesting Decision
Ownership and control implications
Entrepreneur likely loses control in an acquisition
MBO allows entrepreneur to maintain control but at the expense of underdiversification
Dual class shares or nonvoting shares may affect control of the public company
Taxes
Public shares give the entrepreneur timing options
Transactions costs
Private transactions are less expensive than IPO
Roll-up IPO may make public shares possible even for small firms
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The Value of Being Publicly Traded
Recent evidence indicates the net benefits of being public are diminishing in importance in developed economies
Doidge, Karolyi and Stulz (2017) show the number of public firm in the U.S. peaked in l996 and has declined by about 50%,
Kalcheva, Smith and Smith (2017) find similar declines in the number of listings in other developed economies
The decline appears to be associated with growth of institutional ownership and increase in private market benefits
Gao, Ritter and Zhu (2013) argue that the increase in acquisitions relative to IPOs is associated with pressures to grow rapidly
Harvesting Choices of VC-backed Firms
Figure 13.6 shows the drop off in IPO exits of VC-backed firms after 2000
-- Figure 13.6 --
Numbers of exits of VC-backed firms via IPO and M&A and the NASDAQ Index by quarter
Sources: Ball, Chiu, and Smith (2010), Pitchbook/NVCA, Statista, and Yahoo Finance
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Public Market Values and Harvesting Choices
IPO activity increases with market valuations and decreases when market values decline
Possibly because of backward looking valuation practices and asymmetric nature of canceling IPOs if market values decline
Acquisitions continue as a viable exit strategy when IPOs are not
Research shows IPOs are selected when
marketwide demand for growth capital is high
adverse selection costs of issuing equity are low
the value of protecting private information is low
Little evidence that IPO issuers can effectively “time the market”
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Harvesting - Summary
Exit strategies need to be considered when investment decisions are being made
impact on valuation and deal structure
IPO transactions costs are high, but there are distinct benefits to having public shares
Other exits include acquisition, MBO, ESOP, and roll-up IPO
Key decision factors include company size, track record, potential synergies, timing, taxes, control, liquidity and diversification opportunities, and value of being public
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Comparable
Firm Values
New
Information
from
Market
New
Information
from
Market
Comparable
Transactions
and IPOs
Preliminary
Estimate of
Value
Filing Range
Reported in
Preliminary
Prospectus
Issue Price
Reported in
Final
Prospectus
Discounted
Cash Flow
Valuation
New
Information
from Due
Diligence
Indications
of Interest
from
Roadshow
Information
from Issuer
“Take
down” Due
Diligence
Chart1
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Figure 13.2
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Sheet1
| Year | Number | Avg | WtdAvg | Agg Underprice (Bil) | Agg Proceeds (Bil) | |
| 1980 | 71 | 14.30% | 20.00% | $0.18 | $0.91 | 10.153 |
| 1981 | 192 | 5.90% | 5.70% | $0.13 | $2.31 | 11.328 |
| 1982 | 77 | 11.00% | 13.30% | $0.13 | $1.00 | 8.47 |
| 1983 | 451 | 9.90% | 9.40% | $0.84 | $8.89 | 44.649 |
| 1984 | 172 | 3.60% | 2.50% | $0.05 | $2.06 | 6.192 |
| 1985 | 187 | 6.40% | 5.30% | $0.23 | $4.31 | 11.968 |
| 1986 | 393 | 6.10% | 5.10% | $0.68 | $13.40 | 23.973 |
| 1987 | 285 | 5.60% | 5.70% | $0.66 | $11.68 | 15.96 |
| 1988 | 105 | 5.50% | 3.40% | $0.13 | $3.88 | 5.775 |
| 1989 | 116 | 8.00% | 4.70% | $0.27 | $5.81 | 9.28 |
| 1990 | 110 | 10.80% | 8.10% | $0.34 | $4.27 | 11.88 |
| 1991 | 286 | 11.90% | 9.70% | $1.50 | $15.35 | 34.034 |
| 1992 | 412 | 10.30% | 8.00% | $1.82 | $22.69 | 42.436 |
| 1993 | 510 | 12.70% | 11.20% | $3.52 | $31.44 | 64.77 |
| 1994 | 403 | 9.80% | 8.50% | $1.45 | $17.21 | 39.494 |
| 1995 | 461 | 21.20% | 17.50% | $4.90 | $27.95 | 97.732 |
| 1996 | 677 | 17.20% | 16.10% | $6.76 | $42.05 | 116.444 |
| 1997 | 474 | 14.00% | 14.40% | $4.56 | $31.76 | 66.36 |
| 1998 | 281 | 21.90% | 15.60% | $5.25 | $33.65 | 61.539 |
| 1999 | 476 | 71.20% | 57.40% | $37.11 | $64.67 | 338.912 |
| 2000 | 380 | 56.40% | 46.00% | $29.81 | $64.80 | 214.32 |
| 2001 | 79 | 14.20% | 8.70% | $2.97 | $34.24 | 11.218 |
| 2002 | 66 | 9.10% | 5.10% | $1.13 | $22.03 | 6.006 |
| 2003 | 63 | 11.70% | 10.40% | $9.96 | $9.54 | 7.371 |
| 2004 | 173 | 12.30% | 12.40% | $3.86 | $31.19 | 21.279 |
| 2005 | 159 | 10.30% | 9.30% | $2.64 | $28.23 | 16.377 |
| 2006 | 157 | 12.10% | 13.00% | $3.95 | $30.48 | 18.997 |
| 2007 | 159 | 14.00% | 13.90% | $4.95 | $35.66 | 22.26 |
| 2008 | 21 | 5.70% | 24.80% | $5.63 | $22.76 | 1.197 |
| 2009 | 41 | 9.80% | 11.10% | $1.46 | $13.17 | 4.018 |
| 2010 | 91 | 9.40% | 6.20% | $1.46 | $29.82 | 8.554 |
| 2011 | 81 | 13.90% | 13.00% | $3.51 | $26.97 | 11.259 |
| 2012 | 93 | 17.80% | 8.90% | $2.77 | $31.11 | 16.554 |
| 2013 | 157 | 21.10% | 20.50% | $7.94 | $38.75 | 33.127 |
| 2014 | 206 | 15.50% | 12.80% | $5.40 | $42.20 | 31.93 |
| 2015 | 115 | 18.70% | 18.70% | $4.06 | $21.72 | 21.505 |
| 2016 | 74 | 14.60% | 14.40% | $1.75 | $12.12 | 10.804 |
| 2017 | 108 | 12.90% | 15.00% | 13.932 | ||
| avg | 220.0526315789 | 0.1465263158 | 0.1331052632 | 4.4259459459 | 22.7048648649 | |
| Sum | 8362 | 1492.057 | ||||
| Median | 159 | 0.119 | 0.111 | 2.64 | 22.69 | |
| The sample is IPOs with an offer price of at least $5.00, excluding ADRs, unit offers, closed-end funds, REITs, natural resource limited partnerships, small best efforts offers, banks and S&Ls, and stocks not listed on CRSP (CRSP includes Amex, NYSE, and NASDAQ stocks). Proceeds exclude overallotment options, but include the global offering size. The amount of money left on the table is defined as the closing market price on the first-day of trading minus the offer price, multiplied by the number of shares offered (excluding overallotment options) on a global basis. | ||||||
| 0.1784330304 |
Chart2
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| 2017 | 2017 |
Chart1
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Sheet1
| Year | Number | Equal-weighted Mean | Proceeds-weighted Mean | Median |
| 1975 | 12 | 7.20% | 6.10% | 7.60% |
| 1976 | 26 | 7.50% | 7.10% | 7.60% |
| 1977 | 15 | 7.50% | 7.30% | 7.80% |
| 1978 | 18 | 7.40% | 7.10% | 7.50% |
| 1979 | 38 | 7.80% | 7.60% | 7.50% |
| 1980 | 71 | 8.00% | 7.20% | 7.50% |
| 1981 | 192 | 7.90% | 7.30% | 7.50% |
| 1982 | 77 | 8.10% | 7.30% | 7.90% |
| 1983 | 451 | 7.70% | 6.90% | 7.30% |
| 1984 | 172 | 7.90% | 7.30% | 7.50% |
| 1985 | 187 | 7.70% | 6.60% | 7.50% |
| 1986 | 393 | 7.50% | 6.20% | 7.20% |
| 1987 | 285 | 7.50% | 6.00% | 7.10% |
| 1988 | 102 | 7.30% | 6.30% | 7.00% |
| 1989 | 113 | 7.30% | 6.30% | 7.00% |
| 1990 | 110 | 7.30% | 6.50% | 7.00% |
| 1991 | 286 | 7.10% | 6.30% | 7.00% |
| 1992 | 412 | 7.20% | 6.30% | 7.00% |
| 1993 | 509 | 7.20% | 6.20% | 7.00% |
| 1994 | 403 | 7.30% | 6.50% | 7.00% |
| 1995 | 461 | 7.20% | 6.30% | 7.00% |
| 1996 | 677 | 7.20% | 6.20% | 7.00% |
| 1997 | 474 | 7.20% | 6.40% | 7.00% |
| 1998 | 281 | 7.10% | 5.50% | 7.00% |
| 1999 | 477 | 6.90% | 5.70% | 7.00% |
| 2000 | 381 | 6.90% | 5.60% | 7.00% |
| 2001 | 79 | 6.60% | 4.60% | 7.00% |
| 2002 | 66 | 6.70% | 5.20% | 7.00% |
| 2003 | 63 | 7.00% | 6.70% | 7.00% |
| 2004 | 173 | 6.80% | 5.70% | 7.00% |
| 2005 | 159 | 6.70% | 6.10% | 7.00% |
| 2006 | 157 | 6.80% | 6.10% | 7.00% |
| 2007 | 159 | 6.70% | 5.70% | 7.00% |
| 2008 | 21 | 6.40% | 3.40% | 7.00% |
| 2009 | 41 | 6.40% | 5.60% | 7.00% |
| 2010 | 91 | 6.70% | 3.50% | 7.00% |
| 2011 | 81 | 6.40% | 5.10% | 7.00% |
| 2012 | 93 | 6.70% | 3.60% | 7.00% |
| 2013 | 157 | 6.60% | 5.50% | 7.00% |
| 2014 | 206 | 6.60% | 5.40% | 7.00% |
| 2015 | 115 | 6.70% | 5.90% | 7.00% |
| 2016 | 74 | 6.70% | 6.10% | 7.00% |
| 2017 | 108 | 6.60% | 5.40% | 7.00% |
Panel (a) ESOP Initiation
Owner/
Entrepreneur
Sell shares to
ESOP trust for cash
Company
Establish
ESOP Plan
ESOP Trust
Evaluation
of equity for
fee
Cash loan secured
by Company shares
Valuation
Service
Bank
Panel (b) Annual Retirement Contribution Funding
Company
Annual
Retirement
Contribution
ESOP Trust
Funding of
Employee
Retirement
Employees
Evaluation
of equity for
fee
Loan
repayment/release
of shares
Valuation
Service
Bank
Panel (c) Share Redemption at Employee Retirement
Company
Annual
Retirement
Contribution
ESOP Trust
Shares
redeemed
by trust
Employees
Evaluation
of equity for
fee
Valuation
Service
Owner of
Private
Company A
Owner of
Private
Company B
Exchange of shares
for new shares, cash,
and employment
contracts
New
Company
IPO
Public
Market
Investors
Owner of
Private
Company C
