Initial Public Offering - Research Paper Example

 An account of the Initial Public Offer along with its types and the advantages that flow to an entity as a result of the IPO is provided in this essay. Introduction The phrase Initial Public Offer, which is nowadays used as IPO, became popular during the 1990’s tech bull market. At that time, the word become so popular and was used so often that no day was seen to pass until tens of new millionaires were seen cashing in their newest IPO over the internet. Numerous companies, since their incorporation, have used this way of stepping into the market in order to raise the capital for their business and many people have obtained gains through it. Definition The Initial Public Offer, which may also be used as flotation or even just offering, is the offering of the shares of the company to the general public for the first time in order to raise capital for the business. (Investopedia) Initially, some small or medium sized companies may use this method to raise capital in order to develop and expand their business but some of the companies belonging to the private sector also use this approach to trade their shares publicly. Reasons for opting for Initial Public Offer There can be numerous reasons for the companies to get their shares listed in the public or become “publicly traded”. The main reason for an IPO is that the company that opts for an IPO is the requirement of capital in order to expand or meet its liquidity necessity. This way, the money generated by the shares comes directly to the company as conversely the shares traded in the market where the money keeps exchanging among the present and prospective investors. When the company wants to be listed or the company wants to commence public trading, it usually uses the option of an Initial Public Offering to fulfill that requirement even if it’s a private company. Initial Public Offering Procedure A certain procedure needs to be followed when a company decides to go for an Initial Public offering. The IPO cannot be carried out by the company itself therefore a few banks are required to be involved in the process of the IPO. The banks thus involved are referred to as underwriters while the company that is opting for an IPO is known as the issuer. Underwriting is referred to as the method company raises equity or debt to meet its liquidity requirements. The issuer undergoes a contract with the underwriters once they decide to sell their shares to the public; a deal has to be organized through negotiations that decide the terms of the IPO relating to the amount of money that the company desires to arrange, amount of shares that may be bought by the underwriters themselves and the price of the shares etc. (Sharma, 2008) The investment bank prepares a document that is referred as the offering document which contains all the details relating to the offer and then it proceeds to the public and offers them the shares of the company which can be purchased from the bank. When the applications exceed the number of shares offered, a ballot is organized to determine the investors that will get the right to the shares of the company. Types of IPOs There are numerous kinds of IPOs which may include venture capital backed IPO, reverse leveraged IPO and spin-off IPO etc. Two of these types are explained below: Venture capital backed IPO: This kind of IPO takes place when the company decides to sell its shares to a group of investors in exchange of advice and funding and in return they provide schemes for implementation as well as an exit strategy with the intention that the firm is economically practical in the market. (Fung, 2008) Reverse-leveraged buyout: In this type of IPO, the earnings of the IPO are utilized to settle the debt which has been accumulated during the tenure when the company was operating as a privately. Traditional and Auction based IPO There can be two approaches to an IPO which are explained in detail: Traditional IPO: The traditional method of IPO, the company employs an investment bank as an underwriter to carry out the IPO and negotiations are carried out to determine the terms on which the IPO will be carried out i.e. price of shares, required sum and discount etc. Auction-based IPO: This is a more modernized method of carrying out an IPO. The company uses the internet in order to picture the purchase of IPO to the investors with a reserve price. The investors bid on the internet and the shares are sold on the price bid by the last investor. (Essortment) Nvidia Nvidia is a listed company of the NASDAQ stock market and falls in the S&P 500 index. It is a global technology company of United States and is engaged in the manufacturing of the graphics processing units (GPUs) for the computers as well as other devices. The company produces Integrated circuits, graphic cards and chipsets for the computer devices and the main products include graphic cards by name of GeForce for gaming, series of Tesla for supercomputing and Quadro which is used for creation of digital content. (Nvidia) Recent developments The company has become strong after going through several mergers and takeovers. Since 2006, Nvidia has completed several acquisitions such as acquisition of Hybrid graphics, Ageia and PortalPlayer etc. The company was also named as the company of the year in 2007 by the Forbes magazine. During the year, Nvdia has also undergone a licensing agreement where Intel will pay $1.5 billion in lieu of licensing fee in five annual installments. Recently the company has developed and enhanced its graphic integration network and has developed a lot of new products to provide competition in the market. Some other products also include 3D Vision, smartphones, Tegra, NVS and ION etc Financial Information The company has been fairly profitable since its incorporation and has gained stability since being listed in the NASDAQ stock exchange. The company generates a revenue of over $3 billion with net income of $70 million aprox. The share price of the company lingers around $18.5 per share with an Earnings per share of $0.43 for the last financial statements. (Nvdia Corporation) Choice of the company The company has been chosen as the company belongs to a sectors which has been quite successful in the recent past and the company has also gained a fair bit of success in the computers market since its recent incorporation in the early 90s. The company has surpassed all its competitors and has also been involved in a lot of takeovers as well as mergers. Initial Public Offering The IPO of Nvidia was held in 1999 following the marvelous growth of the company in 1998 in the graphics sector as well as in terms of revenue. The company reported around 5 times increase in its revenue compared to previous year where its revenue reached $158 million from $13 million. (Funding Universe, 2002) The company offered 3.5 million shares to the public in the range of $12 per share and the shares were seen to trade at a price of $21 on its opening day. The shares were believed to be issued at $7 per share but they were issued at a price of $12 and closed at a rate of around $20 per share. The company’s successful IPO was followed by numerous mergers and acquisitions; later the company increased its revenue to over $3 billion within the next 12 years to date. Works Cited Essortment. (n.d.). Retrieved from http://www.essortment.com/traditional-ipo-vs-auction-based-ipo-24886.html Funding Universe. (2002). Retrieved from http://www.fundinguniverse.com/company-histories/NVIDIA-Corporation-Company-History.html Fung, H.-G. (2008). Financial Steps in an IPO for a Small or Medium-Size Enterprise. Investopedia. (n.d.). Retrieved April 2011, from http://www.investopedia.com/university/ipo/ Nvdia Corporation. (n.d.). Retrieved April 22, 2011, from http://finance.yahoo.com/q?s=NVDA&ql=1 Nvidia. (n.d.). Retrieved April 2011, from http://www.nvidia.com/page/home.html Sharma, V. (2008). Procedure for Issuing an IPO. Read More