This part of research contains the data provided by the senior management like chairmen and board of directors. In next part the researcher presented the analysis of that data. Before proceeding, the researcher considered it necessary to remind again that all the participants which took part in interviews would be presented anonymously. That's why there would be no quoting with any statements in this research work.
4.1 What were the major motives for making the IPO?
Exit
When this question was asked with the participants, three out of ten replied that they have to go for initial public offer as sometimes shareholders want to leave that business.
One of the participant explains it as "main motive of IPO is exit for the shareholders and it provides long term ownership for the remaining owners." It also includes long term policy for the organization.
Where as in those ten companies,
Raising capital
Two companies said that they major motive to go public is to raise capital for different objectives. One of two companies wanted to provide opportunity to customers to buy their shares from multiple locations or markets. Operations manager of one company explained it as
"We want to raise capital for expansion like our competitors did and we also want to be a listed company".
(Further financing)
Key motive of two companies was to assure financing in future by issuing new shares. Those companies had following motives in making IPO, wanted to show themselves as reputable, full of sources or acquiring of other firms in future. Later on following explanation was provided by the operations manager of one company,
"Stock market is a big place where a company could easily raise capital by issuing new shares and usually less expansive than going to banks for loans"
(Popularity)
Two companies wanted to get fame in market and in customers, main reason of wishing fame is that those companies belong to big group of companies and they want to develop their own.
(Other)
One company did not have any specific reason to go public, according to operations manager of that company,
"It is part of our policy to have only listed companies in our group of companies, and therefore they usually remain active for initial public offers".
One of the motive of that was to get reputation by showing that we are listed company.
Analysis of question 1
It is quite exciting to see that companies have different motives in initial public offers. Those ten companies have motive of exit, raining capital, gaining popularity, part of their policy etc. The findings clearly represent that Two out of nine participants stated that they wanted liquidity in shares by going public
4.2 Have the status and/or the publicity of the company
Changed since the IPO?
(Nine out of ten) Companies said that IPO affected them in from different aspects. They could feel change in status and fame of their company since IPO. One of the operations managers of a company said
" No doubt, we could feel a change after going public, we were one of that companies which went for IPO after a long time at Jordan stock exchange as this trend was decreasing of going public because business were focusing on different aspects like private equity etc, after going public a dramatic increment was seen in fame of our company. "
Another chairman exciting gave following explanation when first OM was talking about the in popularity, according to him,
"Yes, there is tremendous increment in fame of our company since IPO and it also has positive effects on our cash flow".
Three participants said that their action by going public brought positive effect on their company, according to them, IPO increased their trustworthiness. One of the participants provided following statement,
"Since going public, popularity of their company boosted and media played an important role in that, and also after going public, their company has been monitoring by several government bodies just to make sure that we are working according to rules of country and business laws etc."
One of the participants gave this statement
"We are not sure if IPO really has any effects on our company".
According to that participant who is sure about any changes because of IPO also Stated that as IPO is new for their company, but it could show some positive changes in future, as their company spent heavy resources and time I getting IPO, and also they are expecting a positive change in their popularity after IPO. Two participant said after going IPO, their business attracted their lot of attention and they stated giving more time to it, it would help in boosting profit for the business. They also added that after IPO, you consider yourself more responsible and give your full attention your business. According to one participant IPO went against popularity of their company but it also brought more profits, according to him at the time of IPO the media said that the company was overpriced but also since IPO value of company has gone up approximately 56 percent.
Analysis of question 4.2
It can be noted that after going public, nine out of ten companies got different benefits in form of popularity, financial profits and share value etc. In this research work, it was clearly mentioned by the researcher pros and cons between IPO and buy-out and developed a grid to indicate that.
In that model it can easily note that popularity is one of the main advantages in going public. Though this advantage could be see in some previous research on IPO but that was incidentally. This that factor was not considered as significant as that should be. Now the researcher could say that IPO has positive effect on popularity of a business, according to the researcher popularity is directly linked to profits for a business, and also by going public, a company remains in heading of papers, in eyes of government, financial institutions and different watchdogs etc. If the company follows the rules set by the state then IPO would bring more value and profits for that company. Interesting thing in this part of research is to note that nine out of ten participants answered that IPO brought different benefits to their companies in different aspects. Only one participant is not sure about the benefits of IPO for his company and he also added, as IPO is new that's why their company is not able to note the benefits of it, but I am sure in future it would prove useful for our company. One of the participants also stated following statement, " One should never underestimated or overestimated IPO, and also IPO does say that after it value of staff and commitment to business and motivation among employees goes to zero." It could be seen now that by going public, a company could enjoy competitive advantage over competitors by increasing their share market, but also after going public a company needs to be very careful and should make sure they are comply with state and business laws, as at that stage any mistake could have negative impacts or sometimes ends in closing down as media knows about that company very well. Overall IPO usually brings several advantages for a company.
4.3 What were the disadvantages of making an IPO?
(Expensive)
Five participants stated that initial public offer is an expansive process and sometimes cost of listing a company really goes up. One of the participants gave following explanation,
"For going public is not an easy option, we have to meet several requirements, and each requirement would look a burden especially in the beginning of IPO"
(Takes focus/energy from management)
Eight out of ten participants stated that initial public offer takes a lot of time and efforts of management. Some of the problems are time management and sometime pressure of extra work. Three statements are presented here by the researchers which came from three participants in that interview,
"Initial public offer would remove the attention from the business, management could not focus on business operations at the time of IPO, though it is recommended that right before and after IPO the performance of business should boost, but in some cases IPO when management could not concentrate on business during IPO might bring disaster"
"Initial public offer demands a lot from a company, most significant factor is time of management"
"IPO takes lots of time and resources; it could have negative impacts on profitability of the company during the process of IPO"
It was also asked by the researcher from the participants if IPO demands any other special elements from the company, following answers were provided by the participants,
"Restructuring of management team and company needs some special experts who have solid knowledge and experience on stock market activities and operations in order smooth running of the company after IPO, and management of the company should remain ready to face any type of issue as going public sometimes brings several problems as well."
Analysis of question 4.3
It is quite significant here to note that three disadvantages are associated with initial public offer, it cost a lot to a company, takes important time of senior management which could be spend to improve any other part of the business, it also takes focus and energy of senior management in a company. If we compare these feedbacks from the participants to disadvantages in IPO/buyout grid in figure 6, then it could be notice that some of these are from from side of IPO while some of them are not from IPO. According to (Laddle & Shive ,2004) there are five steps which a company must take into account before going public, and usually Initial public offer takes at least three month and a company must keep itself ready to some kind of problems like cost and some extra work as company is going to enter in international market.
The second disadvantage from the participants was that IPO demands a lot of effort and attention especially from senior management in a company, no doubt the participants were right in their answers that IPO takes focus of higher management, but it also brings reward if the senior management could manage the initial issues in beginning of IPO, at the end when the company would start making huge profits, who is going to have that profit, obviously the company.
Third issues was mentioned by the participants is that in case of IPO their company has to pay special attention on training of staff regarding the matters related to going public, sometime their company has to hire special skilled staff experts in stock market, though it is a extra burden on the company, but according to opinion of the researcher it also goes in favour of the company as company could attract good employees after Initial public offer which could play their role in growth of the company, as after IPO popularity of the company expands which attract a lot of business professional towards that company.
4.4 Are there any disadvantages of being a public company?
(Four out of ten)
One third of the participants said that their company did not experience any disadvantages with being a public company,
Though public companies require lots of time and focus of senior management, but almost every company knows it before going public. And right after going public usually companies bring a sharpness in their operations and activities as companies after IPO wants to be in good words in reports issued by different regulators.
According to one of the participant,
"People thing public company takes focus of management and it disadvantage, but it must be seen from positive side as it would create and polish the management skills of staff of the company."
Another third of the participant said about disadvantage of being a public company , he said "that their problems have increased since they became public company as in decision taking they have to consider a lot of factors and issues into account ". It means that they have to consider some other rules and opinion of stock exchange experts before taking any decision.
One of the participants said,
"When a public company has to take any decision, especially matter of issuing new shares and voting rights of shareholders, all these take time before taking any decision as public company cannot take decision own their own, shareholders opinion is considered important."
According to one of the participant following is the biggest disadvantage of a public company,
"A business should respond to an opportunity as soon as possible, in public company before taking any decision regarding investing in new project needs voting of shareholders, which takes longer and by the time the public company gets the feedback from shareholders, the opportunity has gone."
Analysis of question 4.4
This question contains two parts, first one is no disadvantages and second one is increased problems in decision making. What the researcher has mention in literature review is that it is not easy to be a public company, several requirements need to meet. The researcher included this question in list of questions asked from participants as the researcher was not sure what exactly main problems are after IPO a company has to face.
When we asked this question,
And to follow up that question the researcher added follow-up questions about demands of information, quarterly reports. Four out of ten participants said that after IPO the company did not experience any disadvantage. Three out of ten participants faced have to face difficulties in decision making after IPO. They said they have to consider the opinion of others and need to take into account several rules before taking a decision.
According to (Laddle & Shive ,2004) decision taking is a big problem in public company as long list of board of directors and shareholders made it a bit complete and time consuming.
Process of getting new funds takes longer does not matter from bank or by issuing new shares.
4.5 Would the preparations to sell to a PE company been different than making an IPO?
Five participants were convinced that process of selling a company to PE requires less efforts and time than going public. Two participants also stated that that the only action made by the PE Company is the due diligence,
Following statement was provided from one of the participants,
"All you need to do is make a due diligence and that is not remarkable."
Three participants stated that "PE and IPO take similar efforts, so there is not big difference between them."
While one participant provided following explanation,
"There is difference between IPO and buy-out process, buy-out concentrates on value of the business all the time".
But is relatively compound as compare to IPO, according to that participant, it is different but requires similar amount of efforts ".
And one company could not identify any specific the difference.
Analysis of question 4.5
Five out of ten participants agreed that PE would require fewer efforts than going public for a company.
Four participants stated that it would be a different process but would ask for similar attempt. While one participants could not recognize any special difference. According to (Aldred , 2009) a company should count on one to two years of preparations before the formal IPO application, and usually d that process takes at least three months to complete, and a firm has to fulfill some other requirements like education of management and experience as well.
According to (Whealy, 2005) main preparation in PE acquisitions are due diligence and valuation, and normally that process requires two to three to complete.
Comparison of these two approached clearly indicate that Private equity approach is less complicated as compare to IPO. It is also backed by the statements of five participants.
And also four participants stated that though process is different, but it demands similar amount of time to complete. Hence there is not less preparation work is asssocted to private equity, but it is only different from IPO.
4.6 How would the management team value the simplicity of being private, i.e. be spared from public demands?
(Five out of ten)
Five participants stated that management team would prefer PE rather than going public, as that process requires lots of efforts and resources as well.
(Four out of ten)
Three participants stated that their companies are very pleased with going public.
One participant said that management of their company is leaning a lot by the process of going public; now IPO has created skills of multitasking in staff of that their company which would be useful.
One of the participants provided following statement in favour of public company,
"Though financial activities of public company take about 10-15 percent time of management, but they are happy with that, being a part of public company gave them a confidence and it also improved their skills by handling different issues regarding public company."
(One out of ten) One of the participants raised this point,
"The participant said that a PE entity or organization would give a heavy responsibility to the management to boost the profit and it could have huge positive impacts on net profit of the company."
One of the participants provided this statement in favour of PE,
"He says it is good to be a part of management team or director in a PE, as it would be able to enhance your cash balance, but to a member of senior management in a public company would get you good prestige in society."
Analysis of question 4.6
In the answer of that question, five participants replied that the management would like to go for PE rather than public company. Whereas four participant said that their management is happy by going public. But one participant gave different answer from other; he clearly said that there are some advantages and disadvantages with both PE and public company.
According to (Russel, 2006) there are some demands which a public company should take seriously, like publishing of annual reports, financial reports and some other financial organization and government demands, and also even a simple and single shareholder has access to log of public company, which is never welcomed by public companies, whereas in PE no public access, simple motives and limited information needs to be reported, all these factors make PE preferable for management of a company.
4.7 If the shareholders faced the same situation again, with identical conditions, would the same decision be made, i.e. make an IPO?
(Ten out of ten) All the participants stated that they would definitely go again for initial public offer; it means they would take same decision of going public.
Analysis of question 4.7
When the participants look back at their performance after IPO, they are quite satisfied with their decision and performance after IPO.
Business of stock exchange has increased a lot, it is not very easy to identify the specific factor which played an important role in progress of a specific company belongs to participants in this research study; the stock exchange has in general
Increased significantly in value the last year. It is hard to point out any particular reasons
For the specific IPO successes (see stock performance in Appendix A), but the hot issue
And abnormal initial return phenomenon could explain part if it. However, the long-term
Underperformance has yet not occurred. (Leleux & Muzyka, 2006)
4.8 Do you think that the market normally make accurate valuations of public companies?
(Ten out of ten) Yes answer came from all the participants here. However, the researcher says that either question was seriously taken by the participants or laughed at. However, all the participants claimed to have trust on the market and one of the participants gave following statement,
"We always believe in market and market is always fair"
They also added some extra reasons in favour of that question, one participant said,
"Usually market sets the price on each organization by the information it keeps"
Statement of one of the participant is worth reading, he explains how valuation is made besides the assessment of a underwriter for an organization,
"Nine years ago it was a very tough task to raise capital, almost every investor tried to invest in information technology and it is tough for us to attract the investors for investing in business like us, but when we were ready for initial public offer, about thirty five organizations were asking for more than fifth percent shares than we were issuing them".
The value of a company is, according to the Chairman, relies much more on trends than a appropriate estimation of companies. One of the Chairmen provided following statement in answer of that question, he said
"It could be talk about if or not the shares are valued properly in quantity to the different kinds of basic rules that cab be used".
He further explains that because this one has to take into account over- and under estimations that can be seen in the market. When it was asked from the researcher
"What do you say about if your organization has been reasonably priced?"
Once again all the participants went to last explanation. Some of the participants are convinced that the price is appropriate, at the same time as one or two sound more unsure. One of the participants explains that the question is should not be in list of questions being asked at that time, because they organization connection with their organization and May often value the organization higher than it is really worth.
Analysis of question 4.8
All the participants agreed that market usually makes exact estimations of a company, and also they believe that estimation was according to desire. Normally usual methods are used by underwriters for estimation and take decision regarding issuing price. This relies on the value of the venture on a pre-money basis and after a due diligence. It depends on the risk of market price variations during the offering, and some other matters, which are openly associated with the market, and that's why it is the market value (Eric & Davidsson 2008). This agrees with the Chairmen's statement of view that the market is forever correct. Each organization is prized according to the present market and is often compared to other companies in the same industry. There is no question that each valuation is related to the current market. On the other hand, it is attractive consider the valuation theories from (Andrew & Luke, 2005) regarding miss-pricing due to liquidity and information problems. This is on something that is occurring constantly and somewhat sets the market in bend. Also the under pricing phenomenon that is covered by Hebb and MacKinnon (2004) and also Petty et al. (1994) with the different types of underwriters and their different motives, makes the price-fixing according to market value doubtful at times. It is however also interesting to take into consideration, the thought of trends determining the value of a company. One Chairman of a company claims that trends determine, in some way, the value of a company. Back in 2006 when he tried to finance "his" company, there were no interested investors. The stock exchange was highly valued, before the IT bubble, like it is today. This implies similar conditions for going public. Yet he could not find any interested party for financing. Today they issued 40 times less shares than was actually
Wanted by interested parties.
4.9 Were alternatives to IPO discussed?
(Eight out of ten) Eight of the ten participants said that alternatives to IPO were discussed. One of the participants said.
"We would not welcome one more Private Equity organization our group as they (PE companies) usually seek for a fine deal and looking for exit after a couple of few years. We required lasting commitment". (The company already had PE company ownership).
Some other statements provided by the participants,
"Almost everybody among us believes in company, we have got shareholders that trust in the company and its future, and so it is our burning desire is a part of the journey". (The company already had PE company ownership that wanted an exit).
"There were no potential buyers to the price level of the company, due to great uncertainty of the company's economic status at the time".
"We began with the initial public offer as only substitute after an internal evaluation. We were not expecting such a warm welcome in world of stock exchange, we also received high price as well at stock exchange, and the company was simply an attractive stock exchange candidate."
This company also provided following statement in favour of IPO,
"After a careful analysis between PE and IPO, we came to know that there is no special element associated with PE which you could not find in IPO."
Of the remaining four companies that discussed alternatives to IPO to the very end, the researcher found two key reasons.
Three companies accepted that they were unable to obtain high bids from PE companies, or industrial buyers, to abandon the IPO plans. As one of the participants explained it as:
"Number of PE companies was limited at that time and none of them were ready to pay us price of our demand." In both circumstances, parallel plans were ready till the companies completed the journey to IPO successfully, i.e. a few months before.
The last company considered both selling to a PE company, or industrial buyer, as well as keeping the company within the existing group. They further explained that we received many bids, even some relatively good bits just before the final phase of IPO, they also said,
"Theoretically, if someone offers us huge amount of capital than we probably leave the plans of going public".
As no bid was according to our demands, so we considered it better to go public rather than to a PE company. (One out of ten) Only one organization said says that,
"Selling to a private equity firm was never a problem",
In other words it was just the option between making an IPO and making no change at all. Main reason for this could be describe as grouping between getting institutional owners as well as offering a public trade in the shares. (One out of ten) One of the participants said that their company could not make profit at the time of IPO and got not cash flow because of that. That was the reason, private equity companies did not demonstrate any interest and the company selected between making and IPO or making another round with current owners.
Analysis of question 4.9
It is quite interesting to bring to a close that all the participants in interviews except two had similar plans to the IPO. The simple reason described by the companies is that they were not valued according to their desire and price offered by PE firms at that time was less than many other alternatives. Chairmen of seven companies said that stock exchange offered them much better price as compare to PE firms and that's why they selected stock exchange rather than PE firms. Ad those seven chairmen also revealed that they believed that they stock market would be able to provide them better prices in future.
According to (Degal & Wilson, 2006) usually companies that are going private from public are valued much higher in the PE market. However, no such condition (even though the companies were going public from private) was the case here. In this research study all the chairmen agreed on that the PE companies were close to bid high enough prices for the companies that planned IPO. The underwriter of the IPO, and the individual company, also agreed that a higher price was to be found on the stock exchange. In list of ten companies one company that was provided capital with PE Company, expressed it in clear words
" We cannot bear one more private equity company in our organization as they forever keep seeking for a first-class deal and looking for exit after a couple of years. We strongly prefer long-term commitment."
This thing clearly indicates that the policy of PE buyout funds is not always welcomed by shareholders willing to stay within the company. Rather, a stock market will be suitable for that particular company's best.
4.10 Premium prices are often paid when taking a public company private (see recent bid on GAMBRO). Would not the company then be valued higher private that public?
(Six out of ten) Three chairmen had a straight view, i.e. that the company will not be valued higher by private than public. Following statement came form one of the chairmen,
"The price was much higher in the stock exchange as compared to prices offered by PE companies." This is fact was also backed by one more chairman, who states that. "
We also got PE and public companies and we are sure our private company would have more worth if that were a public company. One of the chairman said,
"If the market is thought to be correct, then it show problem in the company that could not get higher value from stock exchange."
Three of the interviewees did not think that the company able to get higher value by private than public, but also felt unsure. One chairman said it is difficult to say any thing exactly at this point.
"The market was un favour of business when we went public, so in my opinion it would be tough to evaluate."
Analysis of question 4.10
In analysis of upper mentioned question it could be said that six of the chairmen agreed on that their company was given much better price on stock exchange as compared to private equity firm. Three companies did not provide ant comments. These findings need to take into account as (Shapard, 200) means that there is an extensive deviation between open market stock prices and equity exchange values. And also,
By (Degal & Wilson,2006) says that the process of buy-outs of stock exchange listed companies (going private from being public) takes place at more than 40 percent premium above the stock price before the offer. However, according to (Degal & Wilson, 2006) underwriters of IPOs compare the firm with the industry, or recent pricings on similar companies, to estimate the equity market value. With similar companies doing well on the stock exchange, new IPOs tend to follow this trend and are therefore valued similar. According to (Wright, & Robbie, 2007) many companies tend to decide to go public in about the same time. The peaks for these decisions are normally in good economic times, when companies have strong cash flows that make them suitable IPO candidates.
