Course Agenda

Introduction

An initial public offering (IPO) is one of the most significant turning points in a company’s life. This course will address why and how private companies take that path by focusing on three principal themes.

First, we will discuss strategic rationale for the IPO decision. What benefits does the company expect to draw by going public? What costs would the decision entail? How would a company need to reform its corporate governance practices?

Second, how should the value of an IPO be determined? What are the various valuation approaches that companies can take to determine company valuation and the offering price?

Finally, the course will provide an overview of the process changes that a company should expect to undergo with the help of external advisors and investment bankers to successfully place an IPO. As we move from one theme to the next, the tone of the discussion will change from strategic to technical to process-oriented, respectively.

At the end of this course, you will:

• Have a clear comprehension of critical elements of the IPO decision
• Appreciate the changes and scrutiny that your company will need to undergo
• Understand how stock markets price securities
• Comprehend what drives your company’s valuation, and therefore, the IPO price
• Learn fundamental approaches to IPO valuation
• Find out the steps that your company needs to take to place an IPO

Course Timings: Registration will be at 8:00 on Day One. The programme will commence promptly at 8:30 on each day and conclude at 14:30 with lunch. There will be two refreshment breaks at appropriate intervals.

AGENDA

IPO Decision

• Introduction and terminology
• Overview of capital markets
• IPO as a source of financing
• Alternative sources of financing
• Strategic reasons for going public
• Assessing whether your company is ready to go public

Strategic Implications Of Going Public

• Corporate governance for public companies
• Minority shareholder rights
• Role of board of directors
• Primacy of shareholder value as the overarching management focus
• Management accountability and compensation practices
• Compliance, disclosure and market scrutiny

IPO Process

• Overview of the steps and timeline
• Assessment of resources needed
• Selection of outside advisors
• Overview of costs involved
• Preparing the business plan
• Choosing the stock market

IPO Pricing

• IPO underpricing
• Rationale for offering IPO at a discount to company valuation
• Role of the regulator in IPO pricing
• Price “discovery” in the IPO process
• Discussion of IPO pricing practices in GCC countries
• Introduction to reverse mergers as a tool to going public

How Financial Markets Value Stocks

• Cash flows as the primary source of value
• Relevance of timing and risk of cash flows
• Fundamentals of time value of money
• Effect of information flow on share prices
• Efficiency of stock markets in pricing shares

IPO Valuation – Multiples Approach

• Commonly used multiple approaches
• Use of multiples in markets with scarce data availability
• Adjusting multiples to account for differences with comparables

IPO Valuation – Cash Flow Approach

• Discounted cash flow valuation methods

- Enterprise versus equity valuation

• Calculating cost of capital for IPO valuation

- Obtaining betas
- How leverage affects cost of capital
- Capturing country risk

• Application of discounted cash flow methods in the GCC environment
• Reconciling DCF and multiples approaches

Case Studies (final selection is subject to change) Harvard Business School case: “CML Group, Inc.: Going Public.” This describes a series of decisions confronting Charles Leighton, co-founder and chairman of the CML Group. CML is a successful participant in the leisure time industry with two lines of business: specialty retailing and recreational consumer products. The key issues in the case are: 1) Should CML Group gopublic? and 2) How should management select an investment banking team? Darden Graduate School of Business Administration case: “Eagle Finance Corp.” This case provides comprehensive coverage of a firm’s decision to undertake an IPO. The company is a non-regulated financial firm in a rapidly growing area of consumer finance (high-credit risk automobile loans). The case follows the firm from its first meeting with investment bankers to the determination of a preliminary IPO price range. Harvard Business School case: “Liston Mechanics.” This reviews, through a rather simple and straightforward situation, various methods of valuation including free cash flow, weighted average cost of capital, equity cash flow, adjusted present value, multiples, and so forth.