IPO for dummies. Part III: the IPO process, its benefits for the company, the founders and owners, and why the company’s management has such a tortured look when opening trades

Start and table of contents, see the first part .

With the shares figured out, now again about the IPO of Yandex ... And where did the shares come from, initially with the IPO, who is the source? Yandex itself?

Yes.
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More precisely, the source can be anyone who has shares. Theoretically, the founders somehow reduce their share of the shares, which means they sell them. Practically, the meaning of IPO in attracting money to the company, and not in the pocket of the founders. This is most likely to be issued as an additional issue of shares ( additional issue ). Although no one interferes with the IPO, in parallel with the additional issue, and to some of the founders or investors, it is obvious to sell their share, in whole or in part.

By the way, Yandex did just that. Of the $ 1.43 billion raised, a little less than $ 400 million came to the company, minus placement costs. The rest almost a billion went directly to shareholders.

How is it that the founders sell the shares, and the money goes to the company, not their hands?

Suppose Petit and Vasya, beginning startups, had half a company. At some point they decided, for the sake of simplicity of mathematics, that the value of the whole company is expressed by 10 shares, and each of them - by 5 shares, respectively.
As part of the IPO, they could sell on the stock exchange for 3 of their shares. Then Petya would have left two stocks, Vasya would have two stocks, 6 stocks would be traded on the stock exchange. The share of owners has become less, each has only 20% of the company.

While Petya and Vasya are together, this is nothing. They will sell each of their three shares and drink beer with the money they receive. The problem is if, in addition to Petit and Vasya, there are a handful of investors from the early pre-IPO phases. From each action you will not beg, there will be a lot of bureaucracy. Yes, and the essence of the IPO is not Petya and Vasya to drink beer, but to attract money to the company. In the company, not Petya and Vasya!

It turns out that in order to attract money to the company (and not the owners), IPOs sell shares that the company owns virtually, and not the owners.

Let Petya and Vasya decide to keep 20% of the shares for themselves (as in the previous case), but to attract money to the company. In this case, it is necessary to ensure that their primary 5 shares correspond to 20 percent. If 5 shares correspond to 50 percent, then one hundred percent correspond to 10 shares (as it was). And when 5 shares correspond to 20 percent, 25 shares correspond to one hundred percent.

With a slight movement of the Parker pen, we transform 10 shares of the company (5 shares in Petit, 5 shares in Vasi) into 25 shares in the company (5 shares in Petit, 5 shares in Vasi, 15 shares are sold on the stock exchange). The company added 15 shares, eroding the share of owners from 50% to 20%. And since the company has issued these shares, it will receive money from their sales. Although the decision was made by the owners of the company, that is, Peter and Vasya.

Let some company have issued 100 shares for sale; 100 people bought them for $ 10; the company earned $ 1000; a year later, stocks went up and began to cost $ 20; they were resold, but the owners have already earned. Not a company. What is the benefit to her then?

Good, expected question.

And the solution is simple. The company issued 100 shares for sale and raised $ 1,000.

Out of the blue.

This is not a loan, it will not have to give, especially with interest. This is free money that has come into the business, with which you can do anything. What will happen in a year is first of all interesting for the owners of the shares, but not for the company anymore (although individual minority shareholders trained at Yale will try to interest the company). And right now the company will receive a powerful boost in development.

Or, if a large amount of third-party investment in the previous phases was poured into the company, investors can now (or as part of an IPO, or a little later) sell their shares and, finally, recoup the investment, leave the company.

Oh, and another funny story. Entering the stock exchange is a good objective assessment of the company. Since then, the company's shares have become perfectly convertible property with good liquidity . They can lay. They can be sold at any (well, almost) moment. You can add new shares or redistribute to the market some more existing ones. With them you can do a lot of interesting experiments.

For example, if a business is so strong that it develops much faster than the interest rate on loans in a bank, the owner of business shares with an estimated yield of 50% per annum may a) lay down shares in the bank at 10% per annum, b) buy at least as much same (and if the loan was given for a larger amount than the shares cost, then more) shares, c) sell them in a year with a 50% profit, d) pay a commission of 10% and buy back their shares from the bank pledged in A. In fact, we described a “reverse deposit”: we take someone else’s money (from a bank), earn money and them, we share a part of the profits with the "investor"; only here we ourselves take on the behavior of the bank.

Yes, if someone noticed, then after point B we still have at least as many actions as we had before point A, so points A and B can be repeated in a cycle until you get bored, or until you get with your fraud. in the Forbes article;)

But if immediately after the release of shares jumped in price, who then benefit? Who will get the main profit from the undervalued shares during an IPO?

Investors who received shares on "pre-order", the offer price , even before the start of trading. And, perhaps, a company that helps a startup get an IPO: underwriter .

Oops, who is the “underwriter”? How does he help with IPO? And what is this "offer price"?

Well, look, you did not think that during the IPO of Yandex on the stock exchange, the accountant begins to trade in shares? Yandex is a high-tech Internet-oriented company, they specialize in information processing, and not in exchange and financial activities. They do not specialize so much that they can hardly find the Yandex Quotes service , and they have not bought tikr.ru yet .

Special investment companies and investment banks understand the exchange much better. They have so much experience that it’s more convenient for Yandex to come to an agreement with such a company about helping to enter the stock exchange (solving organizational issues, helping to bargain) than to figure it out on their own. The division of labor, everyone does what he does best: Yandex processes information and brings profit to shareholders, an investment company helps Yandex convert the ability to convert a large amount of money from an IPO.

Remember the potato exchange? It trades and private traders, and farmers, and large farms, and cooks. But a whole row of warehouses with potatoes is occupied by the group “Potatoes from Gogi”, whose specialists are dispersed throughout the market, know how to loudly scream new orders for sale or purchase and unceremoniously get into the crowd to put an application in a pile. There is also the company “Tarasova Bulba”, which has established direct links with several restaurants of Ukrainian cuisine, always in need of potatoes. So if you have grown a new sort of potato, it probably makes sense to give it to the implementation of one of the large companies, and not try to teach buyers to it yourself.

So and underwriter. Before the start of trading, he carefully analyzed the state of the company and its prospects (both business and trading prospects), discussed the conditions for starting trading with the company entering the IPO: the total number of shares and the approximate range of the stock price that can be offered to investors. Now the underwriter, as with a written sack, will be worn with the company to help it enter the stock exchange.

Perhaps the most important thing is that the underwriter helps to organize a roadshow : company management travels around cities and villages, during which the management jumps on a motorcycle to a burning hoop and sticks his head into the mouth of a dolphin communicating with various large investment companies that could potentially be interested in buying stocks. on an IPO and tells them both about his company and about the conditions for starting trading that were determined at the previous stage. Imagine: several weeks in a row, in different cities, two meetings a day, a marker squeaks on the board, drawing a graph of expected profits, a tie stumbles to its side, a nasty investor from the back of the party giggles and spits at you with a piece of paper from a straw ... Gallardo in the showroom gives you the strength to handle it.

In the process of preparing for the exit, an order book is also compiled, which potential buyers of the shares sign . Not physically, a pen on a piece of paper is a term like this (how did you think the word underwriting is translated?). It indicates the order, how many shares and how much (within a predetermined range) they would have bought. As in trading on the stock exchange, there are also options: you can order “500 shares, but no more than $ 50 per share”; you can ask for “as many shares as it will be for 6 kilobaksov”, you can construct some complex order in the spirit of “if the final offer price is from $ 43 to $ 43.6, then I’m 17 shares, and if from $ 43.6 to $ 44.15, then 14, and ... "

After completion of the roadshow tour, the underwriter looks into the book of applications, he is surprised that buyers want to buy 15 times more shares than the company intends to sell, happily writes a press release to the newspapers, chooses the final selling price (at which will calculate, sell the most bids - more precisely, for the largest amount), and begins to gradually distribute shares among customers. By the way, not all the shares that the company issued for sale on the stock exchange will immediately go away: it will keep some shares for itself in order to “launch” trading on the stock exchange as a market maker .

And here's another thing: depending on the prospect of opening a tender, the underwriter may promise a different company to the issuer. If the prospects are good, the market is vigorous, and the company is going to buy Facebook secretly for the money received from the IPO, the underwriter can give a firm commitment (firm commitment) to the company that will sell all its shares at a pre-negotiated price. And if for one reason or another this does not happen, then the underwriter will stupidly buy out all the shares from the company at the offering price, and then he himself will decide what to do with them. May be forced to sell them cheaper and will be in the red. If the underwriter is not sure about something, then he will promise only to exert maximum efforts (best efforts) to sell these shares, but he will not risk his money.

But one way or another, an underwriter for his activity (both in roadshowing, and underwriting, and in market-making) will take a fee of several percent of the total IPO size. And therefore, theoretically, he will try to make it better. In practice, the relationship between the underwriter and the issuer is a very controversial topic, which is worth only Google’s show off IPO, well described in the book “Google. Breakthrough in the spirit of the time "...

In the end, if the underwriter gave a firm commitment, and it was not possible to sell all the shares, he becomes very sad. But what will happen if the order book is oversigned , and even before the start of trading, the number of orders is significantly greater than the number of shares? This is the underwriter will decide. Of course, he will try to distribute the available shares in the most fair way according to the existing applications. But, I suspect, the underwriting division of Credit Suisse will not offend private investors who are clients of the brokerage branch of Credit Suisse ...

Once again, in brief, you can repeat, who and when are the shares, and how are they evaluated in each case?

At the very beginning of the company's life, only founders have shares.

A little bit later, they certainly sell some of the shares to one or several venture capital investors, “angels”. The circle of people is still very close.

In preparation for the IPO, the underwriter is introduced to the company. He carefully examines its activities, agrees on how many and what stocks will go publicly (and where they will come from: their company will release them, whether their founders and venture capital investors will give them), and roughly predicts what range their value may be at exit.

In the roadshow process, company executives and the underwriter talk about stocks to large potential investors interested in buying stocks at some price in the selected range. Each of the listeners decides for himself how many shares and under what conditions he bought before the release, and leaves a corresponding application.

After the roadshow and its results, the underwriter decides what the official selling price will be (well, like, if the initial range was $ 15- $ 20, and the order book was re-signed several times, and only with bids in the spirit of “yes, we will buy these shares at any quantity ”, it would be foolish not to raise the selling price, say, to $ 25), receives from the founders / first investors / of the additional issue of the company issued for the sale of shares and starts distributing them, satisfying the application (selling shares subscribing for $ 25 per share) .

A part of the shares - maybe 10 percent of the shares issued to him - he keeps for himself, and with the start of trading he goes with them to the exchange. There, he acts as a market maker, trying to best implement these shares, ideally - no worse than the announced selling price (above $ 25). On the stock exchange, they are bought by those who did not get them on preliminary requests (well, plus a whole swara of bots, arbitrageurs, scalpers, speculators, and other typical market fauna). It was at that moment that the price of excitement could rise to $ 30, $ 35 and up.

Gradually, the market calms down (those who wanted to buy at some price - buy or gnaw their elbows, that the price is gone; those who wanted to sell - similarly), the price stabilizes in the area of ​​some value and begins to reflect the market consensus.

So, the company's profit, the benefit to the founder, the benefit to the underwriter, the benefit to investors who bought before the IPO ... And to an ordinary person who did not have time to buy shares before the IPO, there is a benefit in buying shares, a real profit, not 5 bucks a year, I mean?

You have a great way to get profit from any development of Yandex. If he makes a profit and cannot invest it in production, he will pay it in dividends. If he makes a profit and invests it all into production, the value of the shares will rise. If you think that Yandex will be profitable for a while, you need to take it and don’t ask :)

In general, five old women - ruble any profit - it is a profit. 5 dollars of profit from one share (bought for 20 dollars) is 5 thousand dollars of profit from a thousand shares (bought for 20 thousand dollars). Do you have twenty thousand dollars (after all, if there is a search)? Are you satisfied with the annual yield of your contribution of 25%?

And if a person is risky, then this is 5 thousand dollars of profit from a thousand shares, bought for a thousand dollars with a leverage of 20. 500% profit. Or a chance to lose everything to a penny, if during the year the value of the shares drops at least a dollar.

In the next part : the impact of IPO on income from adulte-affiliate.