VCEF_ 2018 Assignment
Brief Introduction:
This assignment requires you to select a private equity backed IPO from US and apply your chosen valuation methods (any two) to value the company at IPO stage. Further, you are also required to evaluate the short-run (underpricing) and long-run financial and operating performance of your chosen IPO. Further details and specific requirements are as follow.
Selection of company:
Use ThomsonONE.com database1, to find US non-financial PE backed companies which went public between 01/01/2010 and 31/12/2013:
i) Select Screening & Analysis >Deals & League Tables>Equity>Advanced Search
ii) Company >Location>Issue/Borrower Nation (select US)
iii) Company> Industry> SIC>Issuer/Borrower Primary SIC > Exclude All categories under Financial D (two digit SIC codes from 60-69)
iv) Deal Info>Dates>Dates: Issue Date (select 01/01/2010 – 31/12/2013).
v) Deal Info>Issue Type (select IPO)*
vi) Item Search > Private Equity. Select PE_BACKED_IPO_FLAG and ‘Select All Private Equity Backed IPO Issues’*
Execute the query and for these criteria about 198 deals should be found. Select Preview to view the results. You should download the data in an Excel spreadsheet by clicking on Excel icon in the top right-hand corner of the screen. You should save this file on your computer. You will notice that most of the IPOs have ‘F’ sign next to the name of the companies. For those companies various filings are available.
Now from PE backed file above select ONE IPO which you want to focus on for the purpose of this assignment. Download and save the PDF files with IPO/listing prospectuses for your chosen company2. Find and download details regarding characteristics of Private equity deals (e.g. name of PE firms, amount invested, syndications, etc.) The PDF files containing prospectuses and characteristics of PE deals could be easily searched using bookmarks containing table of content (left hand side of the screen). Moreover, download financial and non-financial information regarding your company which would be used in further analysis.
Requirements:
For you chosen IPO, answer the following questions:
i) Provide a brief description of the company’s business, major products, markets, industry sector, founding year, founders, private equity/venture capital providers, any important events like buyouts, acquisitions etc. before the IPO. Also state the reason for going public and use of IPO proceeds for this company. Prospectus can
1 Available online at University of Birmingham E-library (http://findit.bham.ac.uk ).
2 You can also use “Perfect Information” database to download IPO prospectus and other filings if they are not available in ThomsonOne.com
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be used to extract this information. Keep this section brief and to the point (no more than 400 words).
ii) Estimate value of the company (i.e. offer price) using two valuation methods. At what price should the stock be offered? Briefly discuss your reasons for choice of these methods and why do you think they are suitable for you IPO company.
iii) Compare your estimated offer price with the price disclosed in IPO prospectus. Explain the difference. Why your valuation might be different from IPO underwriters?
iv) Compare the offer price disclosed in the IPO prospectus with the stock’s closing price on the first trading day. Explain the difference. Also calculate the underpricing on first trading day (raw and market adjusted returns).
v) Evaluate long-run financial performance of the company up to 3 years after IPO using BHAR, CAR and WR. Discuss your results. Why do you think your chosen company has under or over performed? Refer to lecture notes and related articles on the long run performance of IPOs.
vi) Evaluate the long-run operating performance of the company. Compare pre-IPO and 3 years post-IPO operating performance of the company. Discuss your results in light of the relevant literature on long run operating performance of IPOs.
In answering your questions you may want to use other relevant data available on ThomsonOne.com, such as: names of auditors, earnings before tax for last three years, total assets for last three years, turnover for last three years, date of prospectus/listing, offering period, offering method, lock up agreement, length of the lock up agreement, age of the company, percentage of shares sold, use of proceeds, IPO warrants, industry, venture capital (VC) backing with names of the VC firms, underwriter/adviser, end of accounting year, daily prices, stock index values, and market of listing (NASDAQ, NYSE etc.).
You will be working in groups of 5. The word limit is 3,000 excluding appendices and list of references. The assignment is due by 23rd April 2018 noon. Please submit your assignment via Canvas. No hard copies required. You are expected to read other relevant papers on the same topic in order to prepare your report, explain any assumption you make in answering your questions, and list any relevant references you have used beyond those already given in the papers you are reviewing. Marking criteria will be: content, originality (i.e. evidence of additional readings), and presentation.
*Select “No” to “The data item does not apply to all the databases in your current search. Do you wish to include the deals from the non-applicable databases? (In step V and VI above)
