tailieunhanh - Financial Markets and Institutions: Chapter 10

Chapter 10 Stock Offerings and Investor Monitoring: describe the private equity market, describe investor participation in the stock markets, describe the process of initial public offerings, describe the process of secondary offerings,. | 1 1 Part 4 Equity Markets 2 ■ describe the private equity market ■ describe investor participation in the stock markets ■ describe the process of initial public offerings ■ describe the process of secondary offerings ■ explain how the stock market is used to monitor and control firms ■ describe the globalization of stock markets 10 Stock Offerings and Investor Monitoring Chapter Objectives 3 3 Private Equity Private equity is a business that is privately held and the owners cannot sell their shares to the public. Some business owners hope to go public so that: They can obtain financing to support the firm’s growth They can “cash out” by selling their original equity investment to others. A public offering is feasible if: The owners want to sell at least $50 million in stock. The shareholder base will be large enough to support an active secondary market. 4 4 Private Equity Financing by Venture Capital Funds Venture capital funds (VC funds) receive money from wealthy investors and from pension funds that are willing to maintain the investment for a long-term period, such as 5 or 10 years. Investors are not allowed to withdraw their money before a specified deadline. 5 5 Private Equity Venture Capital Market Brings together the private businesses that need equity funding and the VC funds that can provide funding. Terms of a Venture Capital Deal A VC fund will negotiate the terms of the deal when it decides to invest in a business. The VC fund will set out requirements for the business and VC fund managers may serve as advisers to the business. 6 6 Private Equity Exit Strategy of VC Funds VC funds typically plan to exit in 4 to 7 years by selling the equity stake to the public. Financing by Private Equity Funds Private equity funds pool money provided by institutional investors (such as pension funds and insurance companies) and invest in businesses. They also rely heavily on debt to finance their investments. 7 7 Public Equity When a firm goes public, it issues stock | 1 1 Part 4 Equity Markets 2 ■ describe the private equity market ■ describe investor participation in the stock markets ■ describe the process of initial public offerings ■ describe the process of secondary offerings ■ explain how the stock market is used to monitor and control firms ■ describe the globalization of stock markets 10 Stock Offerings and Investor Monitoring Chapter Objectives 3 3 Private Equity Private equity is a business that is privately held and the owners cannot sell their shares to the public. Some business owners hope to go public so that: They can obtain financing to support the firm’s growth They can “cash out” by selling their original equity investment to others. A public offering is feasible if: The owners want to sell at least $50 million in stock. The shareholder base will be large enough to support an active secondary market. 4 4 Private Equity Financing by Venture Capital Funds Venture capital funds (VC funds) receive money from wealthy investors and from