Technical Based Questions Flashcards
What is ECM?
ECM Helps Companies Raise Equity Capital
Consists of the primary market and the secondary market
What is the primary market?
The primary equity market is where companies issue new securities.
It is divided into the primary public market and the private placement market
What is the primary public market?
Private companies go public through IPOs, and listed companies can issue new equity though seasoned issues
What is the private placement market?
In the private placement market, companies raise private equity through unquoted shares that are sold to investors directly
What is the Secondary Equity Market?
The secondary equity market is what most people think of as the “stock market”
It is where all existing securities are traded
What is Capital?
Capital refers to the company’s assets
Capital focuses on the financial resources available to conduct daily business operations
What are the 4 main ways to raise funds in the capital market?
1) Equity shares / Ordinary Stock
2) Bonds
3) Preference shares
4) Debentures
What is equity?
Equity refers to the owners share of assets of a business
Equity = Total Assets - Total Liabilities
What are the factors impacting equity? (4)
1) Retained Earnings
2) Treasury Shares
3) Net Income
4) Dividend Payments
What are the advantages of raising capital in the ECM?
1) Lower debt-to-equity ratio
2) More flexible
3) Compares to debt capital, there is less liability in the case that business fails
4) Attracts and retains better management and skilled employees
Disadvantages of raising capital through the ECM? (5)
1) Expensive and time consuming
2) More scrutiny
3) Fewer tax benefits (Compared to debt)
4) Share price fluctuations can become distracting to management
5) Required to disclose more information
Types of Equity Capital (2)
1) Private Equity
2) Publicly Traded
What is an IPO?
Initial Public Offering
An IPO is the process of offering shares of a private corporation to the public in a new share issuance for the first time
Name two IPO alternatives
1) Direct listing
2) Dutch Auction
What is an direct listing?
An IPO conducted without underwriters
Hence making it more risky
What is a Dutch Auction
An alternative to an IPO
Where the IPO price is not set
Tell me about discounted cash flow
DCF = NPV / Discount rate
Accept is the DCF > Cost of Investment
how is the discount rate calculated?
Using the WACC
WACC = (EquityCost of Equity) + [(% of capital that is debt)(1-tax)]
What is the Net Present Value
NPV is the discounted cash flow or EBIT of a company
NPV = Net cash flow / (1+i)^t
i = initial investment
What are the advantages of NPV ?(4)
1) Considers the time value of money
2) Easy to calculate
3) Considers the cash flows of the project
4) Gives a ranking in accordance with NPV
What are the disadvantageous of NPV? (4)
1) Focuses on short term projects
2) Some costs can’t be estimated or are difficult to estimate
3) Not possible to compare different size projects
4) Difficulty estimating the required rate of return
What is the IRR?
Internal Rate of Return
The discount rate that makes the NPV Zero
Name different types of M&A (6)
1) Mergers
2) Acquisitions
3) Consolidations (Created a new company by combination)
4) Tender offers (Bypass the board of directors, offer to acquire the outstanding stock)
5) Acquisition of assets (Typically in bankruptcy)
6) Management led buyout
name 3 types of mergers
1) Horizontal Merger
2) Vertical Merger
3) Congeneric Merger
What is a horizontal merger?
Two companies in direct competition
What is a vertical merger?
Supplier purchased
What is a congeneric merger
E.g. TV and Cabal company
Valuation of M&A (4)
1) P/E Ratio
2) EV / Share
3) DCF
4) Replacement Cost
What is the ASQE
Aquis Stick Exchange
Consists of the ASQE main market and the ASQE Growth market
Similar to the AIM
Why would companies choose to list on the AIM / ASQE over the Main Market?
More beneficial for early stage, entrepreneurial companies:
1) Provides companies with access to both institutional and retail investors
2) Lower Estimated cost of entry
3) More lenient admission requirements
4) Less onerous continuing obligations
What is the duel track process?
Gives a company the optionality to simultaneously access and IPO, a trade sale/PE transaction, selecting the exit option at a later stage
Triple track process also add debt funding as a third growth funding alternative
What aspects on the IPO would there be advice? (5)
1) Transaction tax
2) Equity Reward
3) Restructuring
4) Carve-out
5) Governance advice
What is IPO readiness? (8)
Prepping the business on a wide range of areas
1) Framing the market opportunity and equity story
2) Modelling the financial track record trends
3) Business Risks
4) Expected growth drivers
5) assessing historic financial information
6) Corporate tax structure
7) Cyber Security Environment
8) Potential Corporate Governance Framework
Three things to consider before going Public
1) Having a clear reason for going public
2) Know what the transaction involves
3) Prep, Prep, Prep
What should companies consider for reasons to go public? (4)
1) What impact they want it to have
2) Will it help the business achieve its objectives in the short, medium and long term?
3) What are the objectives of existing shareholders?
4) Will an IPO maximise business value compared with a trade sale or private equity investment?
What could companies consider for “know what the transaction involves” as something to consider before going public (2)
1) How is the business performing and how would performance be enhanced should the company go public?
2) Are the board, management and shareholders ready for the time commitment and investment involved in the IPO process?
What does “prep, prep, prep” mean for a consideration before going public? (5)
1) Understand and articulate the equity story and market positioning
2) Establish a strong, balanced board with a range of experience
3) Plan resource for IPO process management
4) Consider strategic and practical aspects of timing for the IPO
5) Realign staff incentives to deliver IPO objectives
How does GT help to IPO readiness? (4)
1) Float Room
2) IPO readiness report
3) IPO Readiness Implementation
4) IPO Transaction
What is a Float room?
A one-day workshop with management attended by subject matter experts from across our service lines
Discussion of the company’s:
1) equity story
2) historical and projected financial performance
3) existing financial control
4) valuation aspirations
5) board and senior management structure
6) Corporate governance,
What is the IPO Readiness Report?
A report detailing a comprehensive analysis of current readiness together with a tailored steps plan to achieving full readiness
What is IPO Readiness Implementation?
implementation of the plan set out in the IPO readiness report to achieve full readiness
What are GT’s core offering for IPO Readiness? (8)
1) Framing the market opportunity and equity story and exploring the choice of and ability to access equity capital markets
2) Identifying and modelling financial track record trends, business risks and expected growth drivers
3) Assessing the suitability of historic financial information and financial reporting
4) Considering the adequacy of your financial position and prospects procedures for a listed environment
5) Understanding your valuation and pricing expectation
6) Assessing and subsequently developing a public company-ready corporate governance framework
7) Reviewing your cyber security environment
8) Reviewing your corporate/tax structure
What is NPV?
- NPV looks at the cash flow of a company.
- It’s a value that represents the difference between how much cash is flowing into a company and how much cash is flowing out.
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