Ashley Services Group vs 8Common Limited - Legal Ownership Structure, Characteristics of Each IPO Firm - Case Study Example

Small Business Finance Name Institution Name Date Question 1 Provide a brief description of the activities of each of the businesses 8Common Limited – The primary business of 8Common Limited is developing and distributing two established software solutions which are Realtor8 and Expense8. These software are important to an organization because it generates lead, boost productivity and control costs. Some of the customers include corporate, multinational corporations, government agencies and smaller enterprises. The customers originate from Hong Kong, Japan, United Kingdom, USA, Canada, New Zealand and Australia. Ashley Services Group – the company core business is training and labor hire. It has more than 97 qualification course and 8 accredited courses that can be offered across 24 industries (Ashley Services Group, 2014). In the case of labor hire, the company has 265 active customers and Ashley Services Group is able to hire out 3,800 employees weekly (Ashley Services Group, 2014). Question 2 Identify the legal ownership structure of each firm at the time the prospectus was issued. Provide some explanations as to why the original owners of the business consider that a public company is now a more appropriate structure 8Common Limited – The Company is limited and managed by a CEO with assistance from Board of Directors (Sanston Securities Australia Pty Ltd., 2014). The original owners of the business consider that a public company is important because of the resources that the company would access. 8Common Limited would be able to raise additional capital to improve operations repay convertible notes and allow easier access to equity markets (Sanston Securities Australia Pty Ltd., 2014). Ashley Services Group – The Ashley Services Group is privately held and it has been in operated for a long time (Ashley Services Group, 2014). Participating in the IPO would allow Ashley Services Group to raise additional funds to acquire Integracom, access to capital markets, attract and retain employees, repay existing bank loans and raise additional operational costs (Ashley Services Group, 2014). Question 3 Are the two issues underwritten? Using the specific characteristics of each IPO firm, explain why the issuers were likely to make this choice Underwriter is an investment bank that brings together specialists who ensures an organization that wants to list satisfies all important regulatory requirements and providing all important financial data to the public. In addition, the underwriter contacts large prospective buyers to invest into the company. Moreover, the underwriter would purchase surplus stock since the underwriter recommends the share price. 8Common limited – not underwritten. This may be attributed to the value of the entire IPO. 8Common Limited aims to raise $3.5 million, which may be seen as a small amount and use of underwriters may increase the expenses (Sanston Securities Australia Pty Ltd., 2014). Ashley Services Group - Canaccord Genuity and Evans and Partners have underwritten the Institutional Offer and the Broker Firm Offer. It is attributed to the fact that the amount requested is large and requires appropriate measures and approaches to ensure the IPO becomes successful (Ashley Services Group, 2014). Question 4 Identify any signaling mechanisms the issuers have used in the prospectus. Explain why issuers might use these signals. What other signals could the issuers have provided? Signaling mechanisms are important because a prospective consumer may be attracted to the company (Gregoriou, 2011). Signaling is similar to bait, which makes prospective consumers to decide to purchase any available share. Underpricing – 8Common Limited offer price per share is A$0.25 while the amount to be raised is A$3,500,000. When the amount requested from the public is compared to the capitalization of the company which is A$10 million, a customer may see the stock is under valued (Sanston Securities Australia Pty Ltd., 2014). Ashley Services Group offers a share at A$1.6 while the market capitalization is A$249 million. Ashley Services Group revenues and operation records indicate that there are ready customers and the new of weekly employed persons ensure that buyers are interested (Ashley Services Group, 2014). Moreover, the rate of returns when compared to the offer share price shows that the share is underpriced. Business Analysis – 8Common Limited is positioned at an important sector, which is technology. The world is embracing technology and numerous technological products have been successful (Sanston Securities Australia Pty Ltd., 2014). Moreover, numerous products and services are in the market in which prospective buyers may base while making decisions. Ashley Services Group has numerous consumers and products/services that are offered to the customers (Ashley Services Group, 2014). Moreover, participating in numerous industries across the country including with the long history of the company means that the company can be attractive to share buyers. The company should have provided the dividends relative to the already offered shares. In addition, the number of employees and additional information regarding the company should have been provided to the prospective share buyers. Question 5 Do your issuers meet the definition of small business prior to listing? Explicitly state your chosen definition of small business ASCI part of its roles is regulation of numerous businesses that are classified as ‘small proprietary companies’. According to ASCI (2014), a small business should satisfy two of the following requirements. The requirements are have A$25 million annual revenue; consolidated gross assets should be less than $12.5 million while it employs less than 50 employees within a given financial year. According to the definition, does the Ashley Services Group and 8Common Limited fulfill the requirements of a small business: Ashley Services Group – this is not a small business because the capitalization is more than A$12.5 million (Ashley Services Group, 2014). Moreover, the company, likely, employs more than fifty employees because of the type of work involved including the number of consumers that the company have. In addition, the annual revenue is more than A$25 for Ashley Services Group and therefore it is not a small business but a large business (Ashley Services Group, 2014). 8Common Limited – Before the offerings, the market capitalization of 8Common Limited was A$10 million but after share offering, the value of the company has increased to A$13.5 million (Sanston Securities Australia Pty Ltd., 2014). In addition, since most activities take online means that the number of employees is less than 50 even though it has not been stated. On the other hand, the revenue is less than A$25 million meaning that 8Common Limited is a small business (Sanston Securities Australia Pty Ltd., 2014). Therefore, Ashley Services Group is a large business while 8Common Limited is a small business. References ASCI. (2014). What is a “small business”? Retrieved from http://www.asic.gov.au/asic/asic.nsf/byheadline/Small+business+-+What+is+small+business?openDocument Ashley Services Group. (2014). Prospectus. Retrieved from http://member.afraccess.com/media?id=CMN://2A810861&filename=20140811/ASH_01541624.pdf Gregoriou, G. (2011). Initial Public Offerings (IPO): An International Perspective of IPOs. London: Butterworth-Heinemann Publishers Sanston Securities Australia Pty Ltd. (2014). 8Common Limited Prospectus. Retrieved from www.sanston.com.au/uploads/ Read More