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Strategic Corporate Finance. All about IPOs - Essay Example

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An IPO for Avaya Introduction In the corporate world, there are a number of ways of raising capital or funding for a business. When a business is starting, one of the options is to go to a venture capitalist with your business idea and explain to them how it is going to work…
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Strategic Corporate Finance. All about IPOs

Another option is to raise capital from the public. A corporation is a legal entity separate from the lives of its owners and if conditions are favorable, it can raise capital through an Initial Public Offering (IPO) in the equity market or alternatively through issuing bonds in the debt market. Obviously the public response would depend on the viability of the company, its future prospects and line of business, as well as the reputation and business acumen of its management. Types of IPOs, Advantages & Risks Generally speaking, at the present time there are two options as to how an IPO can be made. The first, as indicated above, is to make a public offering so that all interested investors can read the prospectus and apply for the shares through the stock market. However nowadays things are a little bit more complicated as the IPO is usually conducted by investment banking firms in return for commissions and fees. One of them acts as an underwriter, guaranteeing to take up all shares not applied for. This helps the company raise the required capital regardless of the amount of public response. An underwriting fee is charged as per agreement made with the IPO company. With the large size of corporate entities and the phenomenal sums involved in share flotation, it is not surprising that there could be a number of investment firms involved in the IPO process and they then direct the flow of ownership to popular and moneyed entities so that initial funds to the firm are ensured. However this could lead to lack of diverse ownerships and control problems in later years. The second option in vogue today- and that chosen by Google and Morning Star- is to raise initial capital through an open auction process. As can be imagined, almost anyone interested in bidding can do so by applying for the minimum amount of shares offered in a lot. This can truly diversify ownership as there is no telling who will make a bid for shares (Carter, 2005). It is then up to the registrar to decide who gets the final allotment of shares. However a competitor or an unscrupulous individual or firm may also get hold of a sizeable number of shares this way, so it sometimes makes sense to use the services of investment banks. It could cost a little more to organize road shows, seminars and the like to get people interested, but in the long run more diverse ownership in the hands of the public is guaranteed. It also leads to greater liquidity and the company may not have to resort to stock splits later to dilute values and promote marketability and capitalization (Rao, 2011). A Brief History of Avaya Avaya is a spinoff of Lucent Technologies. Lucent Technologies is itself a spinoff from AT&T. Alcatel-Lucent is the parent company of Bell Laboratories, and like Bell, Avaya is also involved in providing networking, communications and information technology solutions to its worldwide customers. It is considered by experts to be a world leader in hardware maintenance, enterprise messaging, range audio conferencing, operating a contact center and using Unified Communications and Enterprise Telephony. The company was created in 2000. It is headquartered in New Jersey, USA. Avaya has offices in 145 countries (Avaya Group, 2011). Since its creation, Avaya has successfully bid for a number of companies such as Tenovis, Nortel, Ubiquity Systems, Sipera Systems and Aurix. The company is at present privately owned by TPG Capital and Silver Lake Partners, who acquired it on 26 October 2007 for $8.2 ... Read More
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