Chapter 22 Flashcards
capital buyout
Investors’ funds are pooled and used
to buy a controlling interest in a public company
that is then taken private.
confidential memorandum
A document that presents
detailed financial information required by
prospective buyers prior to making an offer to
acquire a firm
definitive agreement
A legally binding contract that
details the terms and conditions for an acquisition of one firm by another
due diligence
A 20- to 40-day period used by
the buyer of a firm to verify the accuracy of the
information contained in the confidential memorandum.
early stage investing
Investment by a venture capital
firm in a company that is in the very beginning
stage of its development.
fully subscribe
glass seagall act
Law that made it illegal for commercial banks to underwrite securities for sale to
the public.
investment banks
later stage investing
: Investment by a venture
capital firm in a company to help the firm grow
to a critical mass needed to attract public
financing.
letter of intent
A document issued by a prospective
buyer that signals a desire to go forward with a
purchase and that outlines the preliminary terms
of the purchase.
limit order
: An order placed by a customer to buy
stock that specifies a maximum price or an order
to sell stock that places a minimum acceptable
price
margin credit
: Loans advanced by a brokerage house
to help investors buy securities.
market makers
Dealers who buy or sell securities
from their own inventories, thereby ensuring that
there is always a market in which investors can
buy or sell their securities.
market order
An order placed by a customer to buy
stock at the current market price.
mergers and aquisitions market
An informal and
unorganized market where firms are bought,
sold, or merged with other firms.
oversubscribed
primary market
A financial market in which new
issues of a security are sold to initial buyers
private equity buyout
When a public company
becomes private.
prospectus
A portion of a security registration
statement that is filed with the Securities and
Exchange Commission and made available to
potential purchasers of the security
prudent man rule
This rule states that those with the
responsibility of investing money for others should
act with prudence, discretion, intelligence, and
regard for safety of capital as well as income.
registration statement
Information about a firm’s
financial condition, management, competition,
industry, and experience that must be filed with
the Securities and Exchange Commission prior
to the sale to the public of any security with a
maturity of more than 270 days.
seasoned statement
seasoned issues
Securities that have been trading publicly long enough to have let the market
clearly establish their value.
secondary market
A financial market in which securities that have previously been issued can be
resold.
SEC
seed investing
short sell
An arrangement with a broker to borrow
and sell securities. The borrowed securities are
replaced with securities purchased later. Short
sales let investors earn profits from falling securities prices.
stop loss order
An order placed with a broker to
buy or sell when a certain price is reached; it is
designed to limit an investor’s loss on a security
position.
syndicate
A group of investment banks that come
together for the purpose of issuing a security.
The syndicate spreads the risk of the issue
among the members. Each participant attempts
to market the security and shares in losses.
tombstone
A large notice placed in financial
newspapers announcing that a security will be
offered for sale by an underwriter or group of
underwriters.
undersubscribed
d: Having received fewer offers to buy
than there are securities available for sale.
