The Complete IPO Course: Learn Initial Public Offerings | Chris Benjamin | Skillshare

The Complete IPO Course: Learn Initial Public Offerings

Chris Benjamin, Instructor, MBA and CFO

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20 Lessons (1h 17m)
    • 1. 020IPOPRO Section 01a Course and Instructor Introduction

      2:19
    • 2. 020IPOPRO Section 01b What Is An IPO

      2:40
    • 3. 020IPOPRO Section 01c The Pros of an IPO

      3:56
    • 4. 020IPOPRO Section 01d The Cons of an IPO

      5:01
    • 5. 020IPOPRO Section 02a The Parties The Company

      2:28
    • 6. 020IPOPRO Section 02b The Parties External Auditors

      4:28
    • 7. 020IPOPRO Section 02c The Parties Underwriters

      3:02
    • 8. 020IPOPRO Section 02d The Parties The Lawyers

      2:51
    • 9. 020IPOPRO Section 02e The Parties The SEC

      2:44
    • 10. 020IPOPRO Section 03a Underwriter Selection

      3:16
    • 11. 020IPOPRO Section 03b Due Diligence and Regulatory Filings

      7:05
    • 12. 020IPOPRO Section 03c Pricing

      2:06
    • 13. 020IPOPRO Section 03d Stabilization

      1:04
    • 14. 020IPOPRO Section 03e Market Competition

      1:56
    • 15. 020IPOPRO Section 03f JetBlue Registration Statement Review

      11:34
    • 16. 020IPOPRO Section 04a JetBlue Case Study 1

      5:34
    • 17. 020IPOPRO Section 04b JetBlue Case Study 2

      5:18
    • 18. 020IPOPRO Section 04c JetBlue Case Study 3

      5:48
    • 19. 020IPOPRO Section 04d JetBlue Case Study 4

      1:45
    • 20. 020IPOPRO Section 05a Course Conclusion

      2:30

About This Class

Are You An Entrepreneur?

Are You The CEO Of A Growing Private Company?

Do You Want To Learn How Companies Go From Private To Public?

Do You Want To Understand The Process Of Working With The SEC For An IPO?

Do You Want To Learn The Entire Process Of Taking A Company Public via An Initial Public Offering (IPO)?

If You Answered "Yes" To Any Of The Above, Look No Further.  This Is The Course For You!

*** Updated June 2019 with new content! ***

Enroll today and join the 100,000+ successful students I have taught as a Top Rated instructor!

Three reasons to TAKE THIS COURSE right now:

  1. You get lifetime access to lectures, including all new lectures, assignments, quizzes and downloads

    You can ask me questions and see me respond to every single one of them thoroughly! 

  2. You will are being taught by a professional with a proven track record of success!

  3. I have taken companies public! You are learning from someone who has been involved with seed stage companies which years later we took public!

  4. Bonus Reason: Udemy has a 100% refund policy - no questions asked and no risk for you!

The Initial Public Offering process (IPO) is a very complex and long one at best.  For the first time entrepreneur attempting to navigate it, there is a lot to know, and not much time to make things happen.  Empower yourself with knowledge of what the process involves, the timing, and what experts you need in order to make your initial public offering (IPO) a success.  By the end of this course, you will be ready to plan out your action plan for an initial public offering (IPO).

In this course we learn a lot of information.  What an IPO is, the pros and cons of going public, who the parties involved are, the entrepreneurs involvement, how to select an investment bank, the underwriting process, the audit process, working with the Securities and Exchange Commission, and finalizing the deal.  As well as everything in between.  As you can tell there is a lot involved, and we will cover it all in this course about initial public offerings (IPOs).

What We Do In The Course:  

  • Learn what an initial public offering is at its core

  • Learn the pros and cons of an IPO for a company and entrepreneur

  • Discuss the selection of the various parties involved

  • Take about the due diligence process

  • Understand the book making and pricing decisions

  • Understand the role the auditors play

  • Have a better understanding of the timing of the entire process

  • Review a case study of an IPO

  • And Much More!

If at any point if you have a question, please feel free to ask through the course forum, I'd be happy to answer any and all questions.  

***JOIN NOW AND LEARN THE INITIAL PUBLIC OFFERING (IPO) PROCESS FROM A SEASONED CFO EXPERT! ***

About The Instructor

Chris Benjamin, MBA & CFO is a seasoned professional with over 20 years experience in accounting, finance, entrepreneurship and initial public offerings and IPO's.  Having spent the first 10 years of my career in corporate settings with both large and small companies, I learned a lot about the accounting process, managing accounting departments, financial reporting, external reporting to board of directors and the Securities and Exchange Commission, and working with external auditors.  

The following 10+ years I decided to go into CFO Consulting, working with growing companies and bringing CFO level experience to companies.  I help implement proper best business practices in accounting and finance, consult on implementation of accounting systems, implementing accounting procedures, while also still fulfilling the CFO roll for many of my clients which includes financial reporting, auditing, working with investors, financial analysis and much more.  

Thank you for signing up for this course. I look forward to being your instructor for this course and many more!

Chris Benjamin, Instructor, CFO & MBA

Transcripts

1. 020IPOPRO Section 01a Course and Instructor Introduction: Hi, everyone. Thank you so much for signing up for the course. Learn the I P o. Process from an experience. CFO. My name is Chris Benjamin. I am a CFO. I'm experienced with IPO's. And more importantly, I'm gonna be your instructor for this course. So first of all, tell you a little bit about the course that I'm gonna tell you a little bit about myself and then we'll jump right in and start learning. So first of all, in the course, I cover all aspects of AIPO, So we're going to start off just learning what is an I p o. We're gonna talk about the pros and cons of them. Why you may want to go public. Or maybe you might want to consider not going public. There were talking about the players, the people involved there, several people involved. We'll talk about each party what their responsibilities are. And then lastly, we're just gonna get to the actual AIPO process. A dizzy. What does it take? What are the steps to go public? What's the timing of it? What are the costs involved? Everything you kind of need to know as someone considering going public with your company at some point in time, I'm really excited. You've signed up for the course. We're gonna learn a lot of information. This course and going through the I p o process is one the most rewarding experiences I probably had in my career. So really excited to teach you about it. That's for myself. So again, my name is Chris Benjamin. I'm a chief financial officer. I spent the first half of my career in corporate world working for companies, worked my way up the chief financial officer. But I knew that I wanted to doom. Or so about 10 years ago, I left the corporate world and went into consulting. So now I'm basically a freelance CFO, if you will. I mainly work with start ups and growing companies. I go in, I help them out. I bring C level management. I bring all my experience with me, and I helped put in place all the policies, procedures, things that they need in place in order to grow their company. And part of that has been taking companies public. And my most rewarding story is one company where I was literally the second person on board it with me and the founder. Four years later, the company was publicly traded, so we went through a lot with that. I'll probably referencing that company quite a bit as far as examples and experience. So that said, That's a little bit about me. That's what we're going to be covering the course again. Really excited You're signing up. If you have any questions during the course, please feel free. Send me a message through the course website. I'll be happy to answer them a swell and encourage you to take a look at my other course. That several art courses related to accounting, finance but also going public venture capital. You know, building financial models, all those kinds of things, lots of information. So I encourage you to do that. But for now, let's get started on the course. 2. 020IPOPRO Section 01b What Is An IPO: All right, So first, let's just talk about what is an I p l. What is an initial public offering? And we'll start by reading the definition just cause I don't want to miss anything, and then we'll talk a little bit more about it. So first of all, an I p. O. Or Stock Market Launch is a type of public offering which shares of a company or sold to institutional investors and also retail investors, which are individuals like you and me out there buying stock on I pose usually underwritten by one or more investment banks. We're gonna talk more about them when we get to talk about the people involved in how you go about choosing them, who also arranged for the shares to be listed on one or more stock exchange. So they have to trade on, say, the NASDAQ or the Amex Exchange. If you're in the United States, um, through the process noticed, floating or going public, privately held company has transformed into a public company. That's exact experience. I went through that. I said I would reference through the course where we took a private company public, So the stock was now traded and everybody could buy it. Initial public offerings can be used to raise new equity. That's a big reason why companies go public to monetize investments, a private shareholders. So it's noticed an exit strategy as well. So think of all those investors who invested in the private company. They eventually need a way to liquidate their shares. And if your private it's difficult to do that when you go public, you essentially putting those shares out there available for everybody and creating a market, Um, it's is a enable easy trading of existing holdings that separates a little bit more. But that's essentially put my iPad down here. What an I P. O. Is. You take a private company and they bring it public. You make the equity the ownership in the company instead of being held by whoever is invested in it available to anyone. And the shares were out there and they can trade. Why do companies do it? Typically it's to raise capital. They want to raise money. You hear about, you know, these companies they raise it had X pricing $20 a share, and they raised, you know, $500 million when they went public, Whatever the case might be a very, very widely. So the benefits and Rex, we're gonna get to the pros and cons next video, so I don't want to stray too far, But you do get a big injection of capital right after an I p o. So that's a big reason why companies do it, and again as well, it provides an exit to the current investors. So typically, when we think of a standard company, sort of a growing company, they got investment from angel investors or venture capitalists. Those guys want to cash out at some point. Usually it's within five years. So the example I have and I'm gonna reference is very relevant because it was a four year deal. Investors came in, we grew, the company went public. Now the investors can all sell their shares for many times what they put in on their on their way. And the company goes about its business. So that's it for an I p. O. That's the gist of what it is and why company might do it. And then now we're gonna talk about the pros and cons in the next videos 3. 020IPOPRO Section 01c The Pros of an IPO: So let's talk about some of the pros. The reason you should go public with your company. And again, I'm gonna read off my list. I'm not going to do this the whole course, but again, I don't want to miss anything. So there's lots of different reasons, and there's the obvious one. So we already talked about It's a good way to liquidate your investors who initially invested in the company as well. It's a huge injection of cash. Those air kind of two main reasons. Companies go public, and they are to the big benefits to to the going public process. Um, it enables cheaper access to capital. So you know it's a lot easier to raise capital when your public company you could issue additional shares and you kind already know what the market prices to say a year down the road. Need the issue additional shares? Well, there's already sort of a value associate with those that the market is dictated, so it's a lot easier to get capital. When you think of a private company, though, it could be difficult getting venture capitalists. If any of you have gone through the process. You know this raising capital is not an easy process, so it's one of those snowball effects. Once you sort of raise capital, grow your company and go public, it just become so much easier to raise capitals. That's a big benefit to the company. Um, it attracts better management employees. So think about it. No start up companies Air risky. It's just the truth. So it's not to say startups don't attracted employees. But when you're a public company, you're gonna track more of that higher caliber type of executive and employee. You know, they probably have experienced they Probably a lot of people only feel safe working for public companies, so there's a lot less risk. Start ups just go under. They go out of business, and that's the truth. So with the public company, there's just a lot more security on the additional benefit there, as well as you now can pay employees with stock. A lot of times, companies will pay employees and portion with stock. Or maybe that's what their bonuses this company stock so another kind of trailing into another benefit here. But you have a way to pay people that isn't cash based, so you can pay your employees executives. You know their bonuses with stock, maybe even part of their compensation is tied to stock or stock options. Speaking of that, you can also pay vendors with stock at this point. Now you could have when you were private as well. But it's a lot more attractive, obviously, to accompany. You know, a vendor of yours when you're a public company and have experienced this directly where I've worked with companies, you know. And they asked, Would you be willing to take part your fee in company stop? And they're usually very willing to be sort generous with it. So say you're do $10,000 there may be tight on cash. They'll pay you 5000 cash, but they might pay you $10,000 worth of stock just because that doesn't actually cost them anything. And they want to fairly compensate you and make it worth your while. So you kind of get a bonus there. So it's definitely from, say, the outsider's perspective, a good reason to take equity. And from the company's perspective, having that publicly traded stock goes a long way, you had now have another vehicle to sort of compensate people as well. It last point is, that kind of gives you options. We talked about easier to raise capital. It's also easier to structure capital deals. You can do things now, like convertible debt. So where company? You might get a loan from a company and it could be convertible into equity. That's a more attractive investment for people than just lending you money with no other options Now, it's not to say that's impossible. But still, having the equity conversion option available is definitely better as well. Other investors just looking at you when you're raising, you know, maybe private equity. So if you've ever heard the term pipe, which you probably haven't, it's not as popular and definitely a lot of companies. It's not as widely known, but Piper's private investment in a public entity. So you know again. So instead of somebody buying your shares on the stock market, they just invest in your company privately on gain equity that way well, you know, have that option. You know, companies are far more interested in investing in you when you have something on equity of stock out there that's worth something that they could trade at some point, and they don't have to rely on selling a privately so a lot of reasons why companies do go public and a lot of benefits to the company itself. In the next video, we'll talk about some of the disadvantages, and certainly there's some just they'll be some caveats, and they're things that think about before actually taking your company public. 4. 020IPOPRO Section 01d The Cons of an IPO: All right, let's talk about some of those cons or those disadvantages to be a publicly traded company . So first of all, on some of these I'm coming up with just off the cuff. But it's a long process, and we'll talk more about the process later in the course. But it is a long process to go public, and there's no guarantee that you will be successful. You might not get the pricing you want. It might not raise as much capital as you'd hope. So you're going to do a lot of work up front to make sure that the IPO will get you where you want to be on. Hopefully it will. So let's assume you do go public. So now you are publicly traded company. What are some of those disadvantages? Well, first of all, it's expensive. The i p o process expensive, and just being a public company is expensive of itself. You have to stand top of legal concerns, accounting. Now you have to have audited financials every quarter, which we're gonna talk about a little bit more in a second. So now you have honor fees, CPS lawyers, Justin, it more expensive. You know, being a company that's public is just a lot more expensive in general. So sure you're raising a lot of capital, but you're gonna sort of increase your cost basis as well. Um, so speaking of that, as a public company, you're required to file a lot of information reports with the Securities Exchange Commission. In this course, we're gonna talk about the United States just cause that's what I'm familiar with. Certainly the I p o process probably differs in other countries, but I think the overall sort of theme of the process would be the same. So hopefully a lot of this will still apply to your company. If it's say, based in Canada or a different country, it does not matter. Um so the the requirements to disclose information the after file quarterly financial reports as well as an annual report. Now the annual report is called A 10-K and the Corley reports are called 10-Q R. Form 10-Q There's actually a little bit longer name but form 10-Q and Form 10-K So those reports disclose a lot of information about your company. So one there's a big you know, you have to put things out there. You have to talk about your sales. After talk about your expenses, you have to show what those are the annual report. You have to disclose management salaries on what equity you know, the management team modes and also who were the major stockholders by a lot information about your company out there. Now that anyone can read that is completely public information. So besides the dissemination of information, so now you really have to share a lot of information. It puts a burden on your company in terms of timing. These reports have strict deadlines, so the 10-Q They're slightly different ones, depending on the size of your company. But in general, the Corley reports, or do 45 days after the end of the quarter, so a month and 1/2. So you know March 31st comes Your corollary report is due by May 15th. Roughly annual ports. To get a little bit longer, you get about 90 days, but still there is so much work and effort that goes into an annual report. Believe me, it's not easy, and a lot of times you'll be pushing that 90 days because it's compiling the financials, making sure they're correct. Getting the auditors in having them review it. Writing all the 10 few. There's a lot information. 10-Q One of my courses. We review the Apple 10-K Sorry, it's over 100 pages long and there's only I mean, a big part of that is financials, but not substantial. I mean, it's still only financials, maybe make up 10 pages of of the 100. The rest is all wording disgusting. The financials talked about the business, that strategy, its growth plans, the management team, everything under the sun about the company. So you're putting out a lot of information, and they're under a lot of stress time wise to put that information out now as well. We kind of talked about the burden. You are also under a lot of stress. Under that process, you're working with external auditors. They're asking for lots of information and back up, and you have to put together schedules. I'm talking more now from the CFO perspective, so there's just the stress. The cost involved. The burden put information out, so few disadvantages there. Let's see. Uh, there's also I mean, you tend to be more at risk for litigation. So you become more of a target for companies to see you because they can one see what you're worth. And two, they you know, there's something in the game there, you know, if you see a private company, just put him out of business and they just disappear. Public company. It's not gonna be that easy. So somebody could see you and come after your shares, etcetera. Um, that's pretty much it. I mean, the disclosure of the costs, the time, the pressure, quite a bit of down sides now. I mean, it might sound horrible all in all, but really it's not. You get in the process and you get experienced people involved. It just becomes part of their job. So a big part of what I do just is a real world example is an outsource CFO. I go into companies and that that's my job. Handle getting the 10 cues in the 10 case, done work with the auditors, make sure everything's done on time. Successful, that's all. I'm responsible for itself. You hire good people to do the work that's involved in same ways you would hire like a good legal team, good lawyer, whatever it might be on. But all the process will happen itself naturally, so it is a big burden. But if you can kind of spread the the pain a little bit, bring in professionals who are really good at it. It's not so horrible at the end of the day and you just get used to it, you have to find people that are experts at it and enjoy doing itself. That said, that's the main cons of going public. All that stuff aside, now we're gonna get into and actually talk more about the parties involved in the going public process and just having a public company in general. 5. 020IPOPRO Section 02a The Parties The Company: all right, So let's start talking about the different parties involved because it's maybe more people than people realize that first. So, first of all, really simple the company yourself we're assuming. I mean, if you're at the point of going public, you definitely have a company of some size on some value. So you're gonna have executives. You don't have different departments, like a sales department I t Department Accounting department. So the company itself is involved. But who within the company? Well, definitely the chief executive officer in the CFO, the chief financial officer going to of the key players involved in the going public process. It will consume a lot of your time and you'll find that it will be very hit. Miss, You might be really busy with something for two or three days related to the I P O. And then everything's quiet for the rest of the week or for two weeks. And the reason is because there's a lot of back and forth. We're gonna talk about the other parties back and forth with auditors. There's back and forth with underwriters back and forth with the SEC while they're reviewing things. So you might find yourself, you know, just waiting to hear back. And there's not much you could be doing at that point. So nonetheless, still, your CEO and CFO are definitely gonna key players involved. That said, you will have to involve other people. So Spear accounting staff will definitely be involved at some point. And that's gonna be related to the auditors. Or maybe just getting information for you. When we get to the process we talk about, you know, the I P o process isn't quick. So let me do lots of different versions and revisions to the financials and the footnotes. You're probably gonna constantly get new information from your accounting staff if you don't want to do it yourself. So and certainly I wouldn't encourage you to employ them to, you know, be involved and help you out one to reduce the burden on yourself as a CFO. I'm talking now and as well to get people involved. I mean, it's a it's kind of a fun thing to go public. It's a lot of work and a lot of stress, but the end of the day, how rewarding is it for people to say they've been through the process. I know. I still feel rewarded for one I went through years ago, so definitely so. First parties involved is just your company, your CEO, the CFO, Probably some of your executives. To a degree, they're gonna have to be writing parts of the filing forum, which is called S one. So we talked about other Securities Exchange Commission documents. The S one is the primary one that we're gonna be using for the going public process. That's the form that's filed. So in there is a lot of information about everything about your company, the products of service, your marketing plan. You got to get some information from your executives eso that those air well written. So just be prepared that it's kind of all hands on deck. Although you key executives will be the ones that are primarily involved 6. 020IPOPRO Section 02b The Parties External Auditors: so the next parties involved or external auditors. Now, if you've worked with external auditors before, you'll have a sense of what that process is like. But I assume you haven't. So, first of all, after you go public and we talked about this initially one of the cons you're gonna have quarterly audits. So, uh, technically, the Corley ones air called reviews, they're not full on it, but at your and you have a full blown on it where they spend weeks working with your company, reviewing everything, checking different things, verifying tying out schedules, lots of work involved. So that's after your public. We'll also before you go public part of the initial filing, the S one. You have to include lots of financial information, its annual and quarterly information. You basically are having to get your previous financial data audited as well. And it might be a big process, because if you haven't done anything to say, you've been going along for four years now and now you're going public. You have to include several years worth of data that's all gonna have to be reviewed. Unaudited. So you're gonna be working heavily with the auditors now as well. I mentioned that there several revisions that go through the sec. So part of it is timing. So one thing that will happen is stale, dating Essentially. So your financial information is only good for so long now. So if you're in that process where said you're quarter ended, you produce your financials, you get Ahmad, it'd you get them in the S one. You ship it off the SEC, they take a few weeks to review it, and then they come back to say, Well, we need these changes. But now guess what? Another quarter has gone by. Well, now you have to include the most recent quarters information. And guess what? You have to get that audited, and you have to get those financials ready so you could see how it could just end up being a never ending process. So at some point, you really have to get ahead of it and really sort of squeeze that in the the financial reports, the auditor review, getting it to the SEC, and getting it approved before he had another quarter goes by. And that information is considered stale dated, which just means there's more recent information available. So that's working with the auditors again. If you have been through the process, just working with auditors could be a little bit frustrating, To be honest with you. For a lot of people, home is definitely a new, intense process, you know, they're asking. So for one, they're under a lot of pressure themselves. They worked very long hours. This is often times how us in the United States how CPS rack up the hours that they need to qualify to to go on, to become higher levels of CPS and what not to get their work experience. So they put in a lot of hours. Working on their job is to ask questions. They're basically picking apart playing detective with your company, verify all the numbers they're asking for invoices, asking for contracts for everything under the sun. The lease agreement you signed, you know, the new car that the company bought, customer contract, etcetera. Then you have your transactional stuff. So you're different expenses, your revenues. They're gonna be testing all that, you know. Let me see documentation for everything. It's a burden. It, as you can tell. I'm just rattling off things that come to top of my head. There's quite a bit involved in an audit. You know, the purpose of this course isn't to dig too deep on on its but just know that definitely are. Time intensive can be somewhat stressful because you have to imagine yourself now, working for the company that you work for a big part of your day now is taken up by the auditors. You're having to get some information. You have to explain different transactions. You know, they're reviewing their coming back and asking for more schedules, and you're having to put together different things and excel. I'm so it eats up a big part, your schedule. But you still have your day to day job, and you know you're trying to go public, so obviously you want the company to continue on the right trajectory and growth. You can't just pause the company while you go through the I p o process. So, um, the external auditors are a big part of the process. They're gonna be there with you. And most likely it will be the exact same firm that you choose Sort of pre Oscar pre I p O . That you just use ongoing as well. One recommendation I can make is if you work with a CFO who has a lot of experience, he probably knows different, uh, different auditors and auditors are C p a. There typically larger firms you don't get individual C. P. A. Is working on large projects like this. You get more of a a firm. They probably good recommendations. I know for myself. I've worked with lots of different audit companies over the years, So I know which ones, or maybe a lot more tough. Maybe they're a bit slower, you know. They have a lot of burden. They have a lot of their clients versus working with maybe some a smaller one. We actually have one that we that I've used in the past. That's a smaller firm that I like using because I have personal really shit with them. We know how each other works. I know they're able to respond quickly, so it just works a lot better. So if you have a CFO who has that sort of personal relationship that can help you out, so that's one way to maybe make your life a little bit easier. When it comes to external auditors, 7. 020IPOPRO Section 02c The Parties Underwriters: So next let's talk about the underwriters. So an underwriter is basically a large investment company or investment banking firm. What they do is they handled the financial side of it. If you go look at any sort of AIPO, especially big ones, if you Googled like a large company and looked at their AIPO somewhere and they're going to see underwritten by and then the name of a large name investment bank, maybe a couple typically one is the lead underwriter. So what the underwriter does, says you hire them. What their job to do is that they basically handle all the shares and transactions. They're also called the bookmaker often, so part of what their job will be is to go and sort of called creating a book. They find different, instant, different other investors to invest in your company. Now that's that's down the road. We're not at that point yet, but that's what they will be doing there, helping on things like helping you set a price so they have their finger on the market. They have an idea of what your stock might sell. Four. So they're trying to set a price. How many shares should be sold. They have a sense they're out reaching to other institutional investors as well as maybe individuals, mainly institutional, saying Hey, you know, we have this new company. X Y Z company will just use a generic term for this course. Actually, see companies going public. Here's a little bit about them. Would you want to be involved in the I P. O. And so they basically firm out bits and pieces of the AIPO. So assume again we'll just assume for the I p. O. We have a 1,000,000 shares. Typically, it's a lot more, but it's a nice round number to work with for this example. So we have a 1,000,000 shares. We need to sell those. We need people to buy them in order to go public. It's not like you just go public and throw them out there and see what happens. Different investment firms need to buy up those pieces of the puzzle. So then what happens on the I. P. O. Day is you know, the each have their allocated shares and then they can from the mountain, tried to sell them off in the market as well. So but your main book writer back to them the underwriter slash bookmaker slash investment bank. Their job is to lead that process. Set the pricing, set the number shares, find other investors that are interested in your company, and then they also take on a wrist. They basically will guarantee that whatever they can't sell, they will take on and by themselves. So your company as a whole will go public. You know, all the piece of the pie will be bought by somebody, just they might have to buy more than they anticipated. If, say, somebody falls through or they're just not able to sell all the shares that they were hoping to eso, that's their main job. It's how they get paid. Typically, they get paid on the back end. They're paid as part stock. They get paid in both stock, sometimes fees as well. It can very construction deals, very sort creatively with your investment bankers, but in essence, you know they get rewarded heavily for being that bookmaker and doing a lot of heavy lifting. I mean, if you can't sell your shares and what's the point of the I PS? So choosing a good investment bank with a good track record of bringing companies public definitely will help. You're gonna pay a bit more, though, for those sort of big name one. So you have to balance it and decide who's gonna do the best job for you. What makes the most sense financially as well. And you're at the end of the day, you want someone who communicates well with you, Does a good job is going to get your share sold. 8. 020IPOPRO Section 02d The Parties The Lawyers: the next part is involved or just lawyer. So, um, there's gonna be lawyers in several aspects. So first of all, you should have your own company lawyer. So if you don't have a company lawyer by this point, if you're going public, I would think that you wouldn't. I would hope that you would, or at least a legal firm that you consult with and that's available for you to use sort of on demand so you might have your own legal team, but they aren't necessarily going public experts. They might just handle general litigation and lawsuits and patents, and who knows what. So what you want to do is you want to hire them lawyers who are familiar with the initial public offering process. You need somebody on your side who's reading things like the S one making sure all that. You know, all everything is in there that needs to be in there, and there's nothing that doesn't need to be. And again, everything's just done properly and it's gonna get through, you know, reviews with the SEC. So besides your own corporate, so you have your corporate general lawyer who would probably be involved to a degree, then you have your eye post or specialist lawyers then as well. The underwriter probably has their own legal team whose reviewing everything, making sure things are written right. So now you have multiple different lawyers involved, and it's not a bad thing. It's not like people are battling, but it does become a big sort of too many cooks in the kitchen. Honestly, at some point, you have lots of different people making edits to the same document. Think about this s one document over 100 pages, you know, lots of legal terms, and they're things that need to be included. You have one lawyer says. I don't think we should include this. Another one who does it can create delays in the process. So part of that is inevitable, and you just have to work with it. You have to have good lawyers that know how to cooperate and work with each other as well as you may be CEO or CFO. Whatever role you fill in this, you need to be able to project manage this. You really need to take the lead and make sure that everything is happening. So that's part of you know, back when we talked about the company, it eats up a lot of your day because besides, whatever it is you have to do after making sure all the other parties, they're doing what they need to be doing as well. And, you know, maybe a week goes by and you haven't heard from the underwriter. Well, you know, what are they up to? Are they busy out there making the book? How's it going? Those types of things just in the side. I encourage you to have sort of a weekly update meeting where you get all parties involved who, as many as can just get updates on how the process is going. Like I said, the I P o process can take months. So and it really is sort of a big project management exercise at the end of the day, but nonetheless back to the lawyers, that's gonna cost you a lot of money. I can guarantee you that legal fees are a big part of the expensive going public. Um, oftentimes they might be willing to be compensated with stock as well. You'll have to, you know, check. That's obviously people's. That's a judgment call there that's completely unrelated to the going public process, but nonetheless, So all the lawyers involved need to work together. Make sure at the end of day everybody's cooperating. At the end of the what you're filing is actually meets all the legal requirements. Oven s one. 9. 020IPOPRO Section 02e The Parties The SEC: so the last part involved, we're gonna talk about the Securities and Exchange Commission themselves. You'll be assigned someone who is in charge of reviewing your file, and you'll be working with them now. It's not like they can offer suggestions on what to write or what you should do. But what they will be doing is when you submit the form, they'll get it. They'll review it now. Reviews contain aches. You know, a few days they could take a couple weeks, typically not a couple weeks. Those initial reviews, they're gonna be the longer ones. And then, you know, they'll point out things that they want changed. You'll go and make those changes. You'll resubmit it basically, and then they can focus on those changes so they don't need to re read the entire S one every time. So that's a benefit nonetheless, so you'll be working with somebody from the Security Exchange Commission. May be to people who work together to review your s one sound. Now remember Securities Exchange Commission. It's sort of a government run institution, and their main purpose at at the very top level is to protect investors. You know they want to make sure that whatever securities air out there that people are investing in is fair, you know. And that's part of where the going public process is so tedious because there's a lot of requirements because they want to make sure the Security Exchange Commission that your company is who they say they are. You are worthwhile to be public. You know, investors would benefit from investing in your company and ultimately end of the day. That's what they want. Now, as far as the reviews, they're making sure you meet all the requirements of the S one and being a public company, you're gonna be able to financially to support yourself, gone going as a public company. We talked about how it gets expensive so they won't make sure that not only will you go public, but you'll be able to grow. And, um, at the end of the day, they're gonna always gonna come back with that. It's things they want to to delete. Maybe this statements a little bit misleading. Oh, the financials air stale, dated. We talked about that a little bit. We need to know the newest version of the financials. You know, there's a date missing here, whatever it might be. So Securities Exchange Commission will be heavily involved in review again. They're not going to be a lot of feedback. I'll tell you what they might want deleted or something. But they're not going to tell you what. Here's exactly what we want to see. They'll just tell you, you know, this needs to be changed. It needs to be more in depth statements like that. So anyways, expect to work with the Securities Exchange Commission as well. And for that that's pretty much the main parties that we have involved. So quite a few parties, quite a bit of money you're going to spend on some of those parties like auditors and lawyers. For sure, you're underwrite a zwelling eventually, but at the end of the day, you need to get everybody on the same page. And like I said, it becomes a big sort of project management exercise. But you work through the process and once you go through, one becomes a lot easier your second and third time because now you know what to expect. So that's it for the parties. Now we're gonna move on and talk a little bit more about the actual AIPO process 10. 020IPOPRO Section 03a Underwriter Selection: Alright, everybody, in this next section, we're gonna be talking about the I p o process. So we're gonna go step by step, discuss what it is, bring up some some points, and then after the sexually go through JetBlue's I appeal process. So that would be a great case study to look at. So just, you know, I'm going to refer to my notes down here. If you see me looking down, I don't want to forget toe pass on any knowledge. The first thing we're gonna talk about is the selection of our investment banks. So we talked about, you know, our underwriter, r slash R bookmaker. We were talking about the different parties involved. Well, this is one of the first steps that you have to do. So if you've decided, you're gonna go public and you have all your reasons behind it when the very first steps is to select that investment bank and the reason is it's because they're gonna facilitate a lot of this transaction. They're gonna be involved from the very start. So you want to do a good job selecting an investment bank. So how do we go about selecting an investment bank. Well, a few things and we talked a little bit about the little we talked about Underwriters. Let's go through them again. It's one reputation. You want somebody, obviously with a great reputation. Someone who's gonna get the job done for you as well has good connections out there. You know, you could look at previous deals that they've done and see that, yes, they were successful. They committed over priced, priced appropriately. You know, they didn't leave a lot of shares on soul different things like that. So the company's reputation, certainly you go out there and find any big name investment bank, and then also you can find the little guys. We're maybe trying to make a name for themselves. Or maybe he just deal with smaller deals, if you will. You know the big name investment banks might no want to handle your I p o fits, say only just for, you know, several $1,000,000 versus you know, the billions that some of the big guys do. So reputation is one just their quality, and that ties into their quality of the company as well. And how big there industry expertise is one thing we didn't talk about investing. Banks tend to specialize in areas that they know best. So whatever industry is that you are in, you wanted investment bank who's done deals in that same industry whenever possible, they're just gonna have a lot more knowledge about what it is that you do. For example, the one typo that was involved in they're very specific niche there in medical research. Industry analyst too much about them. But it was very specific thing that they did. And so they went with an investment banker who had knowledge about sort of bio biotech bio science. All of that, because they could understand a little bit more, like even just the terminology used in the filing. The S one. They understand sort of the different medical terminology and how these types of deals tend to go about. So you definitely want to find investment banker that is expert in the industry that you are in. And then, as well you want to talk about you know what, what sort of amount of shares would they be willing to buy? So say the deal just didn't It goes through, but all the shares aren't sold it they are they able to pick up those excess shares? So we said we'd use the example of a 1,000,000 shares so say they're able only to sell 700,000 of those. Are they willing to buy the excess 300,000? And that's usually kind of part of the deal as well as depending on the the structure of the deal that you have that will determine if they are willing to pick up those extra shares or if, unfortunately, they just go back to you. That's a little just about picking the investment bankers. Then the next step. Talk more about due diligence on the filings, and we're also gonna talk more about the different ways to structure deals with your underwriters. 11. 020IPOPRO Section 03b Due Diligence and Regulatory Filings: All right, so now we're gonna talk more about the due diligence in the entire process. So we're talking about a couple different things in this in this video. So first, all we're gonna talk about the types of commitments that you can have with your underwriter . So remember, the underwriters job is basically to act as a liaison between you, the company and the ultimate shareholders. They Basie facilitate. They take your shares and then pass them on to individual shareholders or other investment banks. So they have a couple different ways to construction of the deal. The 1st 1 is called a firm commitment. In the way that works is they agree to take our full 1,000,000 shares. It doesn't matter how many of them they can sell. They promised to buy them all. So we know what the end of the day our entire AIPO amount of shares will be sold. Now, obviously, for companies to do that or underwriters, they have to believe strongly in your firm. And that's a good sign if they're willing to take on that risk. The other secondary type is called a best efforts commitment. So kind of the opposite. They say, Hey, you know what? We'll take your company public, but we can't guarantee you anything. We will do our best to sell as many shares as we can. But at the end of the day, if say, we only sell 700,000 and that's all we're able to sell, you're kind of stuck with the other 300,000 yourself of your own companies. Stop and then the third is kind of Senate diluted before it's a syndicate of underwriters. So where you have your main sort of lead underwriter and then they go on and sort of, uh, unless a higher. But then find other underwriters as well who all agree to take on part of the deal. So now you have multiple underwriter. So maybe each one just takes on 200,000 shares, and that's their responsibility to to then go on self. So those are the types of agreements you can have. Certainly the one that you want, if possible, is the firm commitment. Your entire block of shares will be sold, but that is one of the certain negotiating points with underwriters. When it comes to, you know, figure out the deal between you and them. So next let's talk about some of the documents you have to sign with your underwriter. So the first is Justin engagement letters, basically a contract between you and the underwriter, and one of the things that will be in there is the fee that you pay them. Now again, The way the fee works for underwriters is typically know they'll agree to buy your shares at X Price, and then they will then go on and sell them at a little bit. Higher prices, usually about 7% roughly so they're gonna make about 7%. So on one other way to maybe think about is they say you're expecting and offering price of whatever $100. They're only gonna pay you $93 per share, and then they keep that other $7 is their fee, and then the shares get sold for $100 per share. That's the easiest way to think about it, and that's how they go about getting compensated. So one other thing that's included engagement letter is an agreement where you will cover all the underwriters out of pocket expenses, travel for the roadshow document preparation. You know, sending things out to potential investors for their time, all of that. So eso that is also included an engagement letter. The next type of agreement you signed with them is a letter of intent so somewhat similar to the agreement. But different different terms are included in the letter of intent. So firstly, underwriter again reaffirmed their commitment to work is your underwriter and sell your company's shares. You, the company, commit to giving them all relevant information. You know, you really need to be transparent with them and make sure they know everything because again they're taking on the risk of selling your shares. So if you're hiding something from them, that's not going to go over well, so you're committed to giving excuse me? All the relevant information to them. So 1/3 item included in the letter of intent is the over allotment allocation. They're sometimes called a green shoe. Now what it is is if you, the company see again. You have your pool of a 1,000,000 shares, your willingness cell for the AIPO. Now you probably have other shares as well. Obviously you the management team still own shares. You probably have a block of shares that are just unallocated. You're not actually going to do anything with them currently. You're going to use them to maybe uses incentives for your employees, pay others for their services, whatever the case might be. So you're gonna have a block of shares that aren't going out to the public in the AIPO? Well, what the over allotment agreement says is basically hate. If the underwriter is able to sell all of 1,000,000 shares and they want more, they're allowed to get more from you. They basically demand them. So it's a set amount, so typically 15%. So in this case would be 150,000 extra shares. So underwriters able to sell shares like wildfire, they come back to say, Hey, we need that over allocation, that green shoe. We need that. I'm not sure where that term comes from, but we need those shares because we can sell those as well. Typically a good thing, So definitely, and that's included as well in the letter of intent. So the next thing is similar to a letter of intent but basically takes over and it's the underwriting agreement. So what happens is you have your letter intent. As soon as the firm price is set for the shares, the letter of intent expires and the under writing agreement kicks in, and it typically will just be under the same terms. But for whatever reason, there's a distinction between the letter of intent and the actual underwriting agreement. Well, part of it is because you want to make sure that up to that point everybody's on board. So a letter of intent has less consequences, if you will. If something was to go bad, you know, the underwriter doesn't agree with the pricing that you want, etcetera. That could back out once the under a writer underwriting agreement goes into effect, which is after pricing. Then they're bound to buy those shares and do everything that they promised to do. So the next is the big one. That s one. It's the registration statement. It's ultimately comprised of two parts. First is the prospectus on the prospectus is what you might have heard that term. It goes out to investors. If you have investments in anything, you probably get a prospectus once a year from the from the company of a mutual fund. Whatever it might be basically just tells everything that you, as an investor, we would need to know about the security or the mutual fund that you own and the same thing here. It's gonna tell any potential investor everything they need to know about the company, etcetera. The other part of the registration statement is the private filing section. Now that's really what the SEC is reviewing. They're reviewing the whole thing, but the private filing section is that is a section that's almost like a 10-K if you will familiar with that, Sisi reports. It has everything about the company. That's where all the legal information is. That's where the management team is discussed. The marketing plan really important? The financials. And that's where we talked about how, if the financials go stale and there's new financials available now, you're going through a reiteration process with the SEC at having to work in new financials . Well, that's where this would be is in the registration statement. So final document I want to talk about is the Red Herring document. Basically, what it is is it's kind of like a prospectus, just not with all the information at some point, you're yourself the company that probably CEO and the CFO, maybe others as well as your underwriter going what's called a roadshow where you typically travel the country you present to different investors investment banks basically trying to drum up interest for the company and its AIPO. Now, this also helps with setting the price. You get a sense of the demand and this is also where you then use this red herring document . Andi show. You know what the company is about? So that's the last document that we will talk about. 12. 020IPOPRO Section 03c Pricing: All right. So that Lex, let's talk about the pricing. How do you price the AIPO now, when we get to the case study later on of Jet Blue, you'll see how the different methods for setting the price So we'll leave the details of pricing there. And there's lots of different methods, like discounted cash flow, using comparables, few other methods its way as well. So, um, in terms of the i p o process, so the action. So during the process, as you're going through everything, you have an idea where the price needs the land. But it's not until right close to the i p o date at what's the effective date that you actually set the firm price and say, this is gonna be the price on this is the number of shares that were going to sell again. You have a pretty good idea, and all this information is included in the S one up to this point. But you do have an opportunity to modify it right up until pretty close to the I p o date. Now, in terms of price setting. So whatever price your company's set, So we're gonna say $100 per share just to make math easy. That's the price that the underwriter is willing to market. The shares that remember they're probably taking a 7% commission, so you're only getting $93 per share now. All that said, whatever prices set, that's what you're getting. It doesn't matter what the share self run the stock market. People often get confused about that. You're basically making agreement, Tween yourself on the underwriter to sell them shares at $93 which they're then going to go on and sell for $100 on the I p o day. After that, whatever happens in the market does not matter to your your funding. So now imagine we had that firm commitment agreement where they agreed to by all of our shares all 1,000,000 shares well, a few days later, and settlement date comes about a week later, after the I p. O. Uh, you would receive that from the underwriter, the $93 per share times a 1,000,000 chairs, $93 million essentially on that would be what you would beginning so you'd have a very firm idea what you're gonna receive. Compare that to the best efforts you're not gonna quite know. It's really going to depend on how many shares were able to actually ultimately sell Come the I p o day. So you really want that firm commitment, and then you have a very solid idea of what, uh, dollar amount you're gonna be receiving. 13. 020IPOPRO Section 03d Stabilization: So after your shares go public, sometimes there's a lot of volatility. People are like them. Maybe the price shot up the first day. So everybody who had initial shares is now selling them off because they're trying to get a quick profit there. So the stock price falls that maybe it recovers. So there could be a definitely a bit of a roller coaster ride there. So during this period, there's something called stabilization. Now what that is is the underwriter is given the ability to buy and sell shares to help stabilize the price. Now, normally, they wouldn't be allowed to do that. That would be probably insider trading and trading on knowledge, trying to manipulate the stock price. But those rules air suspended for the short little while after the I P. O. And it's really because the SEC does want some stabilization in the market. They recognize that the underwriter can only do so much so whatever they can do within their means to get us nice, stable price Now that's not to say it's going to be Artal it unofficially and high or low. It's just come to a stable price that the market tends to want to see. So get rid of that roller coaster ride and try to get a nice smooth price is essentially what stabilization is, and that's another part of what your underwriter will do. 14. 020IPOPRO Section 03e Market Competition: So after 25 days of being public, you transition to what's called market competition. Basically, normal market forces can take place. There's no more stabilization. The market maker slashed the underwriters not able to manipulate stock price by buying and selling large chunks of shares as well. They're required that then disclosed information. This was called a quiet period. They didn't mention that, but that first little a few window a few weeks. It's called a quiet period where no information is really being disseminated about the company other than what was already in the S. One the regulatory filings. So after the quiet period transitions to market competition, now it's just normal. How every stock works, supply and demand people buying and selling it. And your underwriter will also then let me just double check. Yeah, he'll release information. More information about your company's earnings. So certainly whatever is in the S one. At this point, it's probably old, not really old. But, you know, maybe a few months old. Or maybe it's last quarter's, and now there's new information. Maybe your end, this past whatever the case might be, So they're able to release earnings information to the market and as well valuation information, so things that the individual shareholders didn't have access to before. Now they get that information, and they're able to then make better decisions about the value of your company on their own . And if they want to continue to hold your shares, or somebody wants to buy your shares now or sell them, so certainly want your company to be in a favorable position where people are, there's a lot of demand for your stock again. One of the benefits of being a public company is just sort of that market awareness. I'm your company. We're gonna talk about Geoff Lewis in a minute. You know, one of the big reasons they did go public was just to create awareness about their brand. They were a new airline. No airline competition is very tough. There's very slim margins when it comes to running an airline, so they really needed to draw attention. Their company and one way to do that, it's to go public nonetheless. So that's kind of the a dizzy what happens during on I P. O 15. 020IPOPRO Section 03f JetBlue Registration Statement Review: all right. So since we, you know, we talked about you know, just what's required, what you go through for the I p o process. And no big part of it is the is the s one filing to registration statement. So, um, since we're gonna be doing a case study on JetBlue Airlines later in the course, I want to take a look at their That's one filing and show you what? What? It's involved now. It's very, very long. So we're not gonna go page by page at all, But I do want to show you some of the key components of it. So you get a sense of what it s one is right here. This is one of the you'll see up here. JetBlue Airways Corp filed This s one a on April 10th. So, um, the S O. N S. One is the initial filing. The A means it's amendment. This is actually the Third Amendment. I believe so. It's where they're making changes. So we've talked about how you, um, you know, maybe go back and forth the SEC even after you file something. Maybe Then you realize that I need to change something else in there, so you'd have to file this amendment. So and it's really the entire s one refiled just with the changes. So, um, first of all, let's just look at the cover page. Then we'll look at the ah, the index, if you will, and to see if there's a interesting areas we want to take a look at, as the cover page looks much like, if you've looked at any other SEC forms that you have to file things like a case 10 queues , 10 case, they all kind of follow this format, if you will, you know, big, bold letters. Says what it is, um, etcetera. So Amendment number three other we go to form s one registration statement under Scary Zach 1933 has a little bit of information about the company. Um, so again, we're not going to read all this. I'm just gonna skim down and kind of point out some, um, some points. So they talk a little bit about their shares. Um, so you'll notice they're registering. One thing I noticed was they took a look at this the registering 6.3 million shares. You'll notice the offering price is $26. They stuck with that. But then the actual offering is only for 5.5 million. So there, you know, registering 6.3 million shares. They're only selling 5.5 in this AIPO. So these are the ones that were available, Um, to, you know, your bookmaker your underwear to then go on and sell to individual investors. And then this is where to, um, if we haven't talked about it yet, we will get to it in the course. Ah, about the over allotment allocation. So say the bookmaker is able to sell all 5.5 million of these really quickly. There's just a lot of demand they can ask for up to 15% more. Ah, shares to sell because there's such demand. And where that 15% would come from is out of the difference between these two. So this is very common to have more registered than you're actually initially selling. Um, we're gonna go down. I'm just gonna skim down a little graph just out of curiosity. You know, originally, this was their flights, mainly those. I guess they do have some long haul, but not to too many cities, just two main ones, and now they have proposed different routes. And now I know for sure they fly to Phoenix, so they definitely even have more routes these days. But then again, it is almost 16 years later. So table contents. Let's just take a look at the types of things that are included. And you see, it's 88 pages, Um, and then there's, ah in some additional information as well. So again, we're not going to read everyone. So they'll talk about Ford looking statements. Pretty much any document will have this just saying, Hey, you know, there, sport looking statements in this registration statement, it's no guarantee that will actually perform how we think we're gonna perform. There's a summary. They'll talk about the risk factors for the company will talk about how they're going to use the money. So I think we will actually end up trying toe take a quick look at some of these dividend policy capitalization dilution. I'm not gonna worry too much about that for these these purposes. If you do want to download this, um, actually know what I'll do? I will actually clue this as a download I'll save it off as a PdF and you'll be able to download it and it will be attached to this video. So look for that. If you do want to download this and read it, if you just want to find it, just go and Google search for Ah, JetBlue. Um, you know s one registration statement and you'll find a link and you'll find links that wasn't more than too hard to find it all, um, other information about financials management discussion analysis is M D and A s. So this is very much like things that would go into a 10-K report. Um, you know, the financials and then a discussion about the financials talk about their business. They're going to management and ownership information again, very much like a 10-K A lot of this is what you're gonna be dealing with every year for your 10 case related party transaction and successor. So I don't want to bore you too much reading all the different things legal, etcetera, um, the one things I do want to have. Let's take a quick look, give a summary in to see what it says, and I'd be curious what the use of proceeds were. So if we look over here, we're going to go to Page One was probably next page and the Page 21. So let's take a look at that. One thing I do notice. Here it goes from Page seven, the risk factor start, and the page 21 is where use approach. It starts. That means they have 14 pages of risk factors, so they really cover all their bases, which is not uncommon. Let's see, it's a special note. There's perspective. Summary. JetBlue is a low fare, low cost passenger airline, etcetera. Ah, you know, they start business in your 2000 some about their routes. Um, this is interested. Date. We've raised 100 75 million in capital, etcetera, again, a huge capital vestments in the airline industry. Um, they mentioned september 11th 2001 which had a huge impact on the airline industry, which good to mention that. And back then it would been very relevant. I mean, this is coming out, you know, within a year of that, um let's see. Ah, highly competitive expect continue competition to continue, etcetera. So then they go on to talk about their competitive strengths, You know, Why are we you know why will we succeed? So you have to remember who's the audience as well. For this s one. It's It's the SEC themselves. They're determining if if this company is one that should go public, it's also the investors. The potential investors are going to see all this information. So you want to give them a smudge as you can, and you're somewhat required to. So they have a lower operating costs. Proceed. They run a pretty, you know, no thrills type of airline. Um, they have all new airlines, so that have the sort of the best of the best strong brand, which I would agree with. They still do strong culture. I've heard they're great to work for Good location, New York proven management team. And, um, you know, they their executives all came from other airlines. So that's perfect. Advanced technology. So, you know, some of that I mean, I'm sure, but, um, they talk about their strategies, stimulate demand, emphasized the low cost for point to point flights, etcetera. So again, we're not going to read all this. Um, the offering again. 5.5 million shares. Um, common stock to be outstanding after this. 40 million. So we saw up above they were gonna register 6.3 million out of that 5.5. Is this AIPO? Well, what's all this other shares? This is shares that went to investors beforehand. Ones that, um, you know, probably invested in the company privately for the few years that they were operating so over Allotment. Hey, we talked about that. So 825,000 shares. So if they're able to sell all of these, there's an additional 825,000 available. Um, let's see, quick use of proceeds, and then we can jump ahead. Actually, look at the actual we intend to use the proceeds together with existing cash for working capital capital expenditures related to the persons of aircrafts. Sea use proceeds. Okay, so let's just scroll down. So there Ah, proposed markets symbol Jay Blue. All right. So selected financial information get I don't want to worry too much, but they have three years of history. Um, they do have revenues here, and it's in thousands. So that means that you know, $320 million so not too bad. Um, Weaken Scroll down to see that they are indeed profitable in the most recent year. So it's a good time for them to go public. You know, they worked up, and now they're now they're going public. Um, their earnings per share, etcetera. OK, so let's scroll down. I think we said it was Page. So this all the risk factors I'm just gonna pop down here, and we said, is page 21. Uh, oops. Here ago. I just thought you suppose. Seeds. Here we go. Actually. Kind of expected. Honestly, a little bit more of Ah, a chart, If you will just actually detail ing out. You know, we'll use x amount for this x amount for that, um, so they expect to raise one point. We're basically 129 million. Depending if they are 1 48.5 If they use the over allotment, etcetera, 20 up. So initial public offering price of 25 50 per share. So even though it ah, it's a 26 up above now, that's 25 50 down here. That's actually interesting. I don't know if that was a mistake. Um, etcetera, increase access toe. Public capital markets increase liquidity. Ah, Such looking up purchase of aircraft. OK, we don't have a specific plan relating to expenditure proceeds of this offering. Okay, so they really didn't have Ah. I mean, I'm sure they did have an idea, but they just knew they wanted to go public, get their name out there raising capital on the capitalization. Just goes on to discuss, Know how their equity sexual look afterwards. Dilution. We won't again. I don't want to get too much in the numbers that was mainly interested in in those, um, m d n a. It discusses. Uh, You know, there's definitely interesting information here about a number of cities. Serves. So they went from 4 to 18 over. Just course of ah, a year and 1/2. Essentially, your and 3/4. A number of employees. 2000 ploys. That's a decent sized company. A swell. A number of aircraft owned, leased 20 ones that went from three aircraft to 21. So it's kind of cool. All right. So, guys, I don't want this is going a little long. You can download this and read it. I'm just gonna go back up top take a quick look here at our, um, chart or table contents. Yeah, I think anything else in here I was really interested. Use the proceeds. I was actually really hoping for more detail, but we got to read about the summary. The price, the number of shares, etcetera. Um, actually, really quick. Let's take a look. I'm just curious. Page 58. It's gonna scoot down here. Management. Uh, you know what their ownership is. Bear with me for two seconds. 50. There we go. Calf. I'm serves all the executives. CEO Seo, General Counsel CFO. Ah, fairly young management team two. And you look at this, all in their forties. Um, yeah, almost everybody here and then They have directors, even in their thirties and forties. So oldest person was 57. They had someone 53. So fairly young company. You know, you can imagine the chief executive officer accompany at 41 multimillion dollar airline. That's Ah, that's terrific. So it was that talks a bit more about them. I'm trying to see if it shows. I would expect. Okay, This is what I was looking for. It typically shows, you know who are the major stockholders, you see, like Bank Bach, our bank, Boston Ventures, Um, JP Morgan Massachusetts Life. So these were some of the original investors, and, you see, they own a lot of shares. So, um, so another reason going public. All these investors then could go on to sell their shares later on now that the company's public. So imagine you know this, you know, shareholder BankBoston. You know, essentially 2.2 million shares and they go on their cell for about $25 a share. Well, that's where it's quite a bit of money, and I'm sure they invested it quite a bit lower price than that. So definitely when we see people like the CEO has three million shares, Um, you know, so definitely ah, going public gives all these people away toe liquidate that. OK, guys, for real. Now it's, um, 11 minute video. Gonna go ahead and this. Be sure to download this if you want to take a read 16. 020IPOPRO Section 04a JetBlue Case Study 1: So now for this part of the course. What? I want to take you all through its ah, a case study. Essentially, it's a JetBlue Airways. If you're familiar with them. They're in the United States that primarily on the East Coast. But they do fly all over the country. Eso que study was done just on their i p o in the valuation. So you get a little bit more of a real world sense of how the valuation in the process I'll work so, bro, this from some friends of mine who are happy to share. So we'll break this up into several videos. Just a Z trio gets about five minute point, will cut off and then, uh, and then open up the next video. So kind of case study questions they looked at. What are the advantages and disadvantages going public? What different approaches could be used to value JetBlue shares? At what price would you recommend that JetBlue offers its share? So a real world questions that companies need to ask themselves when it comes to an I p o. So the agenda what we're gonna be talking about in the case study here, we'll go over the background. Then we're gonna talk about the I p O Process again, which we already kind of talked about in the course. So you get another sort of real world. Look at it. We'll look at some valuation approaches. How do you really come up with what the amount is? And we talked a lot about how the underwriters really involved in that and then, lastly, what the recommendation is for the pricing that these fellows came up with. It's a little bit of background, just about JetBlue. In July 1999 David Neeleman announced plans to launch a new airline that would bring humanity back to air travel. Ah hired an impressive new management team. So David Barger was CEO, and he comes from, uh, airline background. And then so is John O. In the CFO former executive for Southwest Air. So definitely put some good people on the team right from the start. When you're starting an airline, having people with industry experience is definitely important. So their strategy was fixing everything that sucked, which sounds very, um, sort of tongue in cheek. But that's true when you think about people do complain often about airlines in the service , so point to point service they want to be the lowest cost per available seat per mile for any major U. S airline in 2001. So this is back. It's been a little bit since ah, since it went public. Ah, safe, reliable, low fare airline that was focused on customer service. Now, before we keep going, if you know anything about JetBlue, if you've had the pleasure of flying them, they actually are. Really traffic airline. Um, I've never actually flown on them, but anyone I've ever heard ah, fly with them had nothing bad to say. So definitely a change of pace from your typical airline. So positioned in New York with 21 million potential customers in the metropolitan areas. That's a good area to be a hub early 2000 to operate 24 aircraft flying 100 8 flights per day to 17 destinations. So the concerns for the airline 87 new airlines failures in the previous 20 years, so airline businesses is a tough one to get into. There's very slim margins. There's huge capital expenses to get into the industry, so you definitely have to stand out. Um 9 11 The unit. So 9 11 happened, and then also US airlines industry lost 7.7 billion in 2001. So definitely was a was a hit to the airline industry. Other big competitors Southwest Frontier West Jet. Those are ones that operate in the areas that they operate in and also kind of fly those more regional routes, you know, direct point to point. Not the big, huge sort of cross country halls. So this one's probably most interested. Not the most interesting. But it's definite one of more interesting slides because it talks about the i p o. Process again, and that's what we're here to learn about in the course. So, um, so we're gonna reiterate a few things that we've already learned. First of all, the I P O process takes approximately 3 to 4 months. Ah, hiring a banker underwriter to guide the company through the process. Then you submit all your documents to the SEC handing out the red herring to prospective investors going on the road show to seek interest in the AIPO finalizing the I p. O and distributing AIPO share stuff. Okay, so then on the right hand side here. What you see is, um, underwriter selection meetings. So, um, there's a quiet period where, you know, the company can't put out any news. Nothing. No information. They do their deal due diligence. Uh, then they you see in kind of the red boxed area there, the SEC review, period. So you're looking at 30 days there, and if you notice on the right hand side, the number of days kind of like a light gray, I can show you where you here with my mouse? Right here is the number of days. Here's the box or SFC review period registration announcement date. So company, you know, announces that they're going public. Um, now, again, this actually could end up being much longer than just 30 days. Uh, you could see that this could be repeated several times over. Um, so I know it's the registration statement at the road show Letter of comment received from SEC file amendment. So this is where you might actually then have to file a bunch of amendments haven't re reviewed. And then so that could happen several times over. Ah, once sec is good, though. You have your effective date. Um, then as well, you get a public offering dates. So these air just one day after another. And then one week later, roughly after the offering data Settlement day. That's what all the shares air distributed. You know, every all the money is exchanged hands. Um, you know, the company receives the money, the shares, republic, all that sort of thing. So that's the process in a nutshell. So let's cut this video often. The next one will pick up on the next slide. 17. 020IPOPRO Section 04b JetBlue Case Study 2: all right, So let's talk about AIPO advantages and disadvantages again, something we've already gone through in the chorus. But, you know, let's ah, let's see if they have the same perspective. So the pros there's the financial benefit in the form of raising capital again. It's a big injection of money for the company. Capital can be used to fund R and D capital expenditures or even pay off existing debt, so especially, well, less history. The third point. Increase public awareness of the company. So thinking in terms to civically of JetBlue now that we have a real company. Thio Thio attach the salt to, um, again we said huge capital amount to get into the airline business so going public would allow them to probably finance additional additional planes as well. One point, the increasing public awareness. You know, that's that's news that you want. You want people to know about your airlines on its looked favorably upon. So when companies go public, typically, you know people think of them as being successful and growing, so that's kind of the press that they want the cons. More disclosures to investors. So again, you have to get all that information out there Anything. I mean, the one example always like to use is, um, management salaries. So, you know, now that's out there for everybody to see And how many shares management has etcetera? Uh, number two here. The high costs incurred by complying with regulatory requirements again, That's when we talked about, you know, having quarterly out reviews and annual audits, the legal fees associated with it and just the time that it takes. So you know, your CFO, and it was very much committed to a lot of SEC reporting and third focused on short term results, rather long term growth due to added pressure. So that's one thing we didn't address too much in the course previously. But they're very much is, you know, everybody's waiting for that next quarterly report, the next quarterly report. So there is really this pressure to make decisions that make financials look good, so you might go for a near term win. But in the long run, it maybe isn't in the best interest of the company. Cos some I'm definitely another downfall to be in public and having everybody kind of scrutinize you. So relationship between offering price and opening price of an I P L stuff. Let's get into this. I po investors purchased the shares from the company at the offering price. That's very true. Ah, the price at which the stock opens and for trading is called the opening price. So first of all, let's just go back to offering price. Offering price would be the price that all the different you know, certain institutional investors are paying. No, you're bookmakers. That's the price. Let's say it's I can hear exactly what it is we'll get to later for a Jet Blue. I think it was 24 to $26. Let's just say the price was 25 so all those institution investors pay $25. But then, when the stock opens for trading, it's called the opening price, and that's really based more on demand. So depending on interest from investors, the opening price could be higher or lower than offering. If the opening price is higher, the AIPO investors have an immediate gain if it's lower them immediate loss. So imagine you know you are one of those initial investors in jet blue. Your institutional pay $25 a share. The stock goes public, and immediately it shoots up to 30 $35. There's just so much interest in the stock you could sell off your stock and make a pretty quick, you know, return on your investment there. But as it says, if, say, the price plummeted and certainly there's been I pose. It's kind of almost a trend somewhat that the stock tends to kind of shoot up the first day and then starts to come down heavily after that and part of it, too. It's just unaided nature of trading and supply and demand. All right, so the I p o price with the high wasn't low. The initial price range for JetBlue after the roadshow was 22 to 24. Management filed an increase in the AIPO, so they listed for 25 to 26. Ah, the pros for the higher I p O price. If the opening price is higher than the offering offering price Ah, the company is able to generate higher capital from the i PS. So, um, that's very true. And then pros for lower I p o price. In some cases when the opening price is too high, the demand communal sustainable and lead to a loss later on. So, um, there's no good reasons to go high and good reasons go low, then in straight to too far from the initial, you know, price that the demand was kind of implying, but they did bump it up. Let's look at one more slide. Valuation approaches. So So this is like, how do you come up with Where did they come up with this price? How do you determine what JetBlue is worse when it's been a private company? Ah, comparable company? Multiple. So, overall airlines multiples and low fare airlines. Multiple. So look at other companies. What are they worth? A total capital multiple your even, uh, which is earnings before income tax, depreciation and amortization. So a multiple of that, and even which is earnings before income tax multiple. So you look at how much learning and the new place some multiple to it, like five times this because you expect growth and whatever reasons, another. So that's a way of sort of applying comparable companies and multiples. There's also the discounted cash flow method, so you have to, you know, put in some key assumptions. You know, what is the discount rate is one of the biggest ones in what will your you know what your casual projections? I mean, that's gonna impact very much the number. And then you have to do different scenario analysis. So what if no cashes and quite a size without Or what if it's more than we thought so different ways to go about evaluations. So let's cut this video often will pick it up in the next one. 18. 020IPOPRO Section 04c JetBlue Case Study 3: all rights on this next slide. Valuation approaches comparable multiple. So let's take a look here and make about a sense of the Sutton. Um, in thousands, first of all the numbers. So overall airline multiples, total capital multiples. One point to the EBITDA multiple 6.85 multiple. Start down here. Ah, that little note. We won't get too much into it, but basically they're looking for multiples to apply to their numbers. So low fare airline multiples. There's the multiples told a business value above a buck told business value. LF there you go. So the basic came up with different numbers, you'll notice. I mean, these airs. I mean, there's a decent difference there, but there's a really big difference here. I mean, this is almost three times this number, so I definitely come up with some different values. Um, let's see. It's over on average business value again in millions this times 871. Uh, that's overall all airlines loaf fare airlines, um, one point say to less the debt equity value, equity value per share. So big difference. I mean, overall airline in the street. Say 11 low fare airlines 20. I mean, that's a pretty big difference, Um, in the value per share. So let's see what they do with that evaluation approaches, discounted cash flow. So there's weighted average cost of capital. So this gets into a little bit more. I mean, they definitely going toe to betas and different statistical. So we probably won't try to make sense of this. That maybe got a little bit too technical, You know, the scope of what we're looking for. But let's see, Yeah, I don't see too much on here that, like, there's not enough on her to really make sense of it, what they did. And I'm sure when they regional presenters presented this, they, you know, had explanations for it. So let's see what's on the next side. They did some numbers. Okay. We can probably make sense of the numbers a little bit more. Um, so again, remember, this was early in. This was to down once. So they're forecasting forward. These are all forecasting forward. The year growth rate. Uh, future cash flows, terminal value totals. Basically did. Matt, if you've ever if you're familiar with this kind of casual, you project ahead, um, you do some math, including, you know, what do you think it's gonna be worth? The growth rates, the terminal value, And then what you do is you discount it back in the same today. This is what this, you know, this set of cash flows is worth it's worth 1.4. I'm guessing this was still millions I would assume. And you see down here price per share with using this method $26. Okay. I mean, that's right there in that range that they came up with 25 to 26. Evaluation approaches, sensitivity analysis. So this is where you say, Well, what happens if you know Ah, the growth is more than expected. Um, so they put this together under different scenarios. The our stock price we haven't conclusion is 26.7 per share, violet discounted cash flow method. So right there again. Still on. That's why I don't want unnecessary run through each of these numbers. Just know that they're calculating different ways of coming up with share price, and it looks pretty in line with what they ended up going with equity value per share, Tom, overall count multiples, low fare multiples. This kind of cash lump business enterprise value again, we'll just kind of skim through these equity equity value per share. So definitely different numbers that are coming up here. So, overall airlines using multiples $10.70. Think we saw that on the previous screen. Low fare multiples 1976. Almost $20. Then using the discounted cash flow method 26. So coming up with some very different price per shares, I'm using different methods of calculating value. Um, average equity share estimate 82 such just an average of these. As a result, our evaluation will be 18 82. So the people putting together this presentation we're tryingto that there were sort charged with, you know, what would you have valued? Um, JetBlue App. JetBlue itself 25 to 26. They're saying, Well, probably should have been more like 18 82. So just a summary. Although after the second secondmarket sounding 25 26 I peel price per share for JetBlue Still facing demand or supply, that doesn't mean the I P. O. Price should necessarily be higher. If the stock price traded below I p o price. After a few hours trading. That means the investors don't have faith in your company's suggesting it's nearly impossible for the company to raise additional capital through follow on equity offerings. I would say that's a bit drastic. I wouldn't say it's impossible for a company to offer do a secondary offering. I would say that the pricing would have to definitely be what's looked out. As a result, our team would recommend an I P. O price of 22. So, oddly enough, they recommended 18 8 to in the previous side. Now they kind of bumped it up to 22 which will not be too low to raise capital for operations and not too high to hinder future capital raising market liquidity. So one thing to want you to take away from this this, you know, whatever prices the offering price, that's what JetBlue is going to get, you know? So the bookmaker buys all JetBlue shares at what they actually did it 25 to 26 you know. So if the price is too high, then yeah, that's they're gonna have a hard time selling them, and the stock market price will probably drop and things look bad. But at the same time, JetBlue doesn't want to say, Well, what's just often about $15? Because that's all they're getting. They're getting $15 per share. So ah, you know, it's Ah, it's a tricky situation. Definitely want to make sure you do it correctly. So that said, let's end this, uh, JetBlue sort of case study and we'll move on in the course. 19. 020IPOPRO Section 04d JetBlue Case Study 4: just one little last comment was going, including the last video. I completely forgot. I thought I'd be interested in take a look at JetBlue stock and see what the price has done over time. So this is all of time From 2000 to, um, camera. Exactly. When their I p o. Was it was slightly before this. Or if, um nonetheless, it doesn't matter. That's 2002 all the way up to 2018 today. So we see here in early 2000 to, you know, the price. About $14 so definitely took a hit. Came down. Sorry. Some of this graph is covered by this box here and try to get rid of it. No, it won't let me. Ok, well, over here, this peaks. You can see the peak right up here at the top. $26. Then it kind of comes down again. I mean, we're seeing lows. Look at this over here. If you look on the very right of the graph, like 5 84 etcetera, um, you know, as a scroll across, I think that's probably with the lowest to 96. So for $3 you could have had Jet Blue in 2009. But then we see things pick up. And so right here. What's that price? About 26. $27. So big increase over six years. But it would have had to hold on to it for six years from here, all the way to here. And who would have known? Because it definitely stayed flat for a while. And then currently it's at 2015 $20.15 a share. So it did actually go public at 25 to $26. They never really, really cracked that. I mean, they cracked it just slightly here, um, and over here, But, uh but that's it. It's definitely been a lot lower. So the demand hasn't been quite as high as they expected. And obviously, that's now, um, almost Ah, that's juice almost 16 years ago, now that they went public, so and I just want to take a quick look at that and show you what the price had been doing 20. 020IPOPRO Section 05a Course Conclusion: All right, everybody. Congratulations. You made it through the course, so we covered a lot information in this course. I mean, we started off with identifying all the parties. Then we went through the process. We took a look at JetBlue's s one registration statement. And then we also looked at the case study about JetBlue and how they went about, um, you know, pricing the AIPO. You know what kind of was a fair price for that I po and just and also what the process looked like for them. So lots of information covered. Hopefully, you feel far more educated now about the entire initial public offering process. What's involved? Ah, few points. I wanted to sort of drive home here. So one and sorry for the slightly weird fun. I just noticed that. But it was the I p o. Processes fairly involved. There's a lot of parties. It takes up a lot of time, your time, their time. That which also relates into this the appeal process fairly costly, paying for auditors, paying for lawyers, you know, paying for your own time. I mean, you probably WTO and wind up working quite a bit in order to make the I p o happen so definitely can be stressful is well, it's the third point said, You know, it's just there. There might be times where you feel like you're I'm not getting anywhere. And you're just constantly, you know, going back and forth with the sec filing revisions or, you know, the lawyers air taking too long. Or maybe you're different legal parties. Their you know, uh, arguing over what shouldn't shouldn't be included, so it definitely could be stressful on. And obviously that leads as well, then to taking more time. So a t end of the day they remember why you're going public, Remember, that is gonna be a challenging process once you go through it once. You'd be an expert, though. See that 2nd 3rd times. If you have a chance to go through, it will be far more smoother. It's on the next slide. I just have my contact information. There I am again. My name is Chris Benjamin. Honestly, if you had any questions during the course, I hope you reached out to me already. If you have not, though, go ahead and send me a message. Probably through the course website is honestly the best way to reach me. Um, as well. So a few other final two points. I love hearing your feedback. So if after taking the course, if you can leave a review, anything I can do for you to get those five star reviews, I really appreciate it, love, you know, making quality courses for you guys. And then my last point is definitely check out my other courses. I've got a lot of other courses available, and they'll tend to centre around things. Accounting, finance, entrepreneurship, you know, growing businesses, you know, forecasting for starts, all those types of topics. So you might find something else interesting for you as well. I'd love to be your instructor on yet another course, so thanks again, everybody for taking this course, and we'll see when the next one.