Going Public 463multibillion dollar entity like Big Deal Corporation. Besides, if the key to suc-
cess is to hit the market fast with Dough-Ware, teaming up with Big Deal Cor-
poration is the fastest way to achieve that goal.
The investment banker says that if the desire is to sell to a strategic part-
ner such as Big Deal Corporation, or anyone else who can pay a high price
quickly and assist in the marketing of Dough-Ware, his investment banking
firm will be pleased to handle the proposed sale of the company and could
shop potential strategic acquirers and find the best price.
Through the afternoon, the conversation works itself toward a consensus
to effect an immediate public offering. Certainly the prospect of more rapid
ultimate profit which would result from a prompt IPO is intriguing to all:
Vulture Partners and the other prior investors; management; and John Dough
and Mary Manager as founders. All are intrigued with the advantages that
being a public entity can bring:
- Relative ease of raising additional capital for expansion in the future.
- Ability to obtain debt financing at reasonable rates (not now available due
to lack of hard asset collateral or proven cash f low). - An ability of existing stockholders to partially cash out their investments
at a profit. - The ability to attract employees in a highly competitive technology mar-
ketplace by reason of public equity incentives. - The ability to easily acquire related software companies and to make pay-
ment for such acquisitions through the issuance of additional shares of
company stock.
Near the end of the meeting, the investment banker turns to Dough,
Manager, and the entire executive team and says that he feels compelled to
share with them some of the risks and problems, both short term and long
term, that they will encounter in going public. Effecting an IPO, and living
with the reality of being a public company thereafter, is not all a bed of roses.
For example:
- At this particularly crucial time in the marketing of the Dough-Ware prod-
uct, significant attention will be diverted from the operation of the busi-
ness into the process of going public and in preparation of the prospectus. - The full disclosure that will be required in the prospectus will cause the
disclosure in detail of the company’s business strategy and perhaps some
of its trade secrets, and will reveal the terms of its contracts with Big
Deal Corporation, and with some of its customers and suppliers. - Any transactions between the company and its affiliates (its officers, di-
rectors, significant stockholders, and their relatives, and companies they
own) must be disclosed. - The cost of an IPO is significant; it is likely that investment banking firms
will be retained as under writers and will take 7% of the gross proceeds