O'Reilly logo

Private Equity: History, Governance, and Operations, Second Edition by ADAM A. WADECKI, JAMES P. MARTIN, LOUIS W. PETRO, HARRY CENDROWSKI

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Chapter 5

Legal Considerations in Initial Public Offerings

Phillip D. Torrence

Introduction

Initial Public Offerings (IPOs) are one mechanism by which PE funds may realize liquidity for their investments. This chapter will focus on the straightforward IPO model, rather than the details of some of their variants, such as post-IPO registered offerings, Rule 144 exchanges, recapitalizations, reverse mergers with public shell companies, and so on.

In general, a PE fund will look to an IPO as its exit strategy because it believes, based on market conditions in existence at the time, that it can obtain a significantly higher return on its investment as compared to a sale transaction. Nonetheless, the following factors may make a sale transaction more favorable than an IPO:

img Infrastructure. To go public and maintain its stock price, the target generally must have established a consistent, stable pattern of growth and profitability. To do that, the target will need to establish professional manufacturing, distribution, finance, and administration and management. Building the infrastructure necessary to operate as a successful, publicly traded company is time consuming, expensive, and dilutive to the present equity holders. While in a particular case the target may command a higher valuation in an IPO than it can in a sale transaction, the potential for a higher valuation may not be worth ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required