CFS equity financing

Q1: What is the difference between private placement and public placement?

A: Private placement: selling equity directly to selected investors; Public placement: selling equity to the general public via a stock exchange.

Q2: Who typically invests in private placements?

A: Angel investors (early stage), corporate venturers (strategic partnerships), private equity/venture capital firms (growth stage).

Q3: What is an IPO?

A: Initial Public Offering: first sale of a company's shares to the public to raise capital.

Q4: What are key benefits of going public?

A: Raise large capital, stock price serves as performance measure, diversify financing sources, increase visibility/reputation.

Q5: What are the main costs/disadvantages of listing?

A: High flotation and ongoing costs, mandatory disclosure (competitive risk), loss of control, potential agency conflicts.

Q6: What is IPO underpricing and why does it occur?

A: Issuing shares below market value to encourage subscription due to asymmetric information and lack of prior market price.

Q7: What are the three main functions of investment banks in equity issuance?

A: Underwriting, advising on timing/price, and marketing/selling shares to investors.

Q8: What is firm commitment underwriting?

A: Underwriter buys entire issue, bears risk of unsold shares; common in developed markets.

Q9: What is best efforts underwriting?

A: Underwriter sells as much as possible; company bears risk of unsold shares; common in emerging markets.

Q10: What is Dutch auction underwriting?

A: Investors submit bids; final price set by auction clearing price; less common globally.

Q11: What is a Seasoned Equity Offering (SEO)?

A: Sale of additional shares by a company that is already publicly listed.

Q12: Why does the market value of existing equity often drop after a new issue announcement?

A: Signals negative information (undervaluation, financing needs), reduces debt capacity, may indicate future earnings shortfalls.

Q13: What is a rights issue/rights offering?

A: Offering existing shareholders the right to buy additional shares, usually at a discount; shareholders can exercise or sell rights.

Q14: Ex-rights date

A: first date new shares trade without rights;

Q: Cum-rights price

A: price including rights;

Q: TERP

A:Theoretical Ex-Rights Price = weighted average of old/new shares.

Q15: What are non-traditional methods of issuing new securities?

A: Shelf cash offer, Competitive firm cash offer, Direct placement

Q: Shelf cash offer

A: pre-approved future offerings

Q: Competitive firm cash offer

A:investors bid for shares

Q: Direct placement

A:sell directly to selected investors without underwriting