Corporate Finance

Once political uncertainty is not as big anymore, strong IPO activity can be expected. Big data and online processing are big themes:

CNN Money: Stop sweating the tech IPO 'drought', March 22, 2013

.....
Lise Buyer of Class V Group, for example, says that many issuers postponed Q4 2012 or Q1 2013 offerings due to concerns over how the public markets would react to both the presidential election and fiscal cliff negotiations -- worries reflected in a late December volatility index spike. The fiscal cliff situation was revolved in early January, but it takes several months for company's to restart their IPO processes. "Most of those companies still plan to go out," Buyer says. "So there's an awful lot in the pipeline." .... read more on CNN Money

Keywords: IPO, IPO activity, Tech, Venture Capital, Big Data, Online Processing

De Socio, Antonio and Nigro, Valentina, Does Corporate Taxation Affect Cross-Country Firm Leverage? (November 29, 2012). Bank of Italy Temi di Discussione (Working Paper) No. 889. Available at SSRN: http://ssrn.com/abstract=2206357

Abstract:

"We evaluate the relation between firm leverage and taxation of corporate income using a dataset of mostly unlisted European corporations, highly representative of medium-sized and large firms. We use a correlated random effect approach in order to take into account unobserved heterogeneity and to assess the contribution of cross-sectional variation of the regressors. We also apply quantile regressions to evaluate a possible differential impact of taxation on leverage across firms. Our results suggest that corporate income taxation is positively related to leverage and explains part of the cross-country variability, showing a stronger effect for less levered firms. In accordance with the theory of the debt tax shield, the relation between debt and taxation is stronger for highly profitable firms. These findings are robust to the inclusion of different measures of the financial development and characteristics of the legal system of the country where firms are located."

Keywords: Firm Leverage, Leverage, Corporate Taxes, Capital Structure

Borisov, Alexander, Ellul, Andrew and Sevilir, Merih, IPOs and Employment (July 6, 2012). Available at SSRN: http://ssrn.com/abstract=2178101 or http://dx.doi.org/10.2139/ssrn.2178101

Abstract:

"This paper studies the relation between the going public decision and employment growth experienced by IPO firms. We find that a typical IPO firm in our sample hires twice more employees around its IPO than during its life as a private firm. The number of employees increases by 31% during the two-year period around the IPO. Evidence shows that the most likely channel through which IPO firms increase their employment levels is the relaxation of their financial constraints, allowing firms to access both equity and debt markets resulting in better funding of their growth opportunities and an increase of the firm’s human capital. We also examine the relation between employment growth and firm performance: IPO firms with greater employment growth exhibit better performance and lower delisting probability. Overall, these results highlight the importance of the IPO event and access to public capital markets for job creation by US firms." Source: SSRN

Keywords: Initial Public Offering, IPO, Employment

Are corporate bonds one of the asset bubbles. The Economist has a distinctive view:

The Economist: Desperately seeking yield Investors are gorging on corporate bonds. Is an asset bubble being inflated? Nov. 10, 2012

Keywords: Corporate Finance, Corporate Bonds

Costas Azariadis and Leo Kaas, Self-Fulfilling Credit Cycles, Working Paper 2012-047A, Federal Reserve Bank of St. Louis, 2012

Abstract:

"This paper argues that self-fulfilling beliefs in credit conditions can generate endoge- nously persistent business cycle dynamics. We develop a tractable dynamic general equi- librium model in which heterogeneous firms face idiosyncratic productivity shocks. Capital from less productive firms is lent to more productive ones in the form of credit secured by collateral and also as unsecured credit based on reputation. A dynamic complemen- tarity between current and future credit constraints permits uncorrelated sunspot shocks to trigger persistent aggregate fluctuations in debt, factor productivity and output. In a calibrated version we compare the features of sunspot cycles with those generated by shocks to economic fundamentals."

Keywords: Self-Fulfilling Beliefs, Credit Cycle

Horan Capital Advisors: Strong Stock Buyback Activity in Q2, Sept. 22, 2012

Source: Horan Capital Advisors: Strong Stock Buyback Activity in Q2, Sept. 22, 2012

Keywords: Corporate Earnings, Dividends, Share Buy Backs

Related:

Bloomberg: Grantham Calls Corporate Profits Freakish, Nov. 28, 2012

Greenhill & Co.'s CEO Scott Bok talks about the shrinking mergers and acquisitions markets. (Source: Bloomberg)

Sept. 24, 2012

Keywords: Mergers & Acquisitions, Corporate Finance, M&A Cycles

Telegraph: Debt crisis: a $46 trillion problem comes sweeping in, by Jeremy Warner, May 28, 2012

.... "Standard & Poor's estimates that companies in Europe, the US and the major Asian economies require a combination of refinancing and new money to fund growth over the next four years of between $43 trillion and $46 trillion. The wall of maturing debt is unprecedented, raising the prospect of further, extreme difficulties in credit markets."

read about it in The Telegraph

Keywords: Corporate Debt, Corporate Refinancing

Martin Kenney, Donald Patton, Jay Ritter, Post-IPO Employment and Revenue Growth for U.S. IPOs, June 1996–2010 Report for the Kauffman Foundation, May 2012

"There is significant concern among policymakers about the health of the Initial Public Offering (IPO) market. From 1980–2000, an average of 298 domestic operating companies went public in the United States each year, but from 2001–2011, the number of new listings fell to an average of only ninety per year.1 Despite the acknowledged importance of stock markets in raising capital for newly listed firms, there has been surprisingly little research examining the impact of these newly listed entrepreneurial firms on the U.S. economy in terms of revenues or employment. This report examines the employment and revenue growth performance of all domestic operating companies undertaking an IPO on American markets from June 1996, when the SEC’s EDGAR site started making IPO prospectuses available online, through 2010. During this period, according to our definitions, 2,766 domestic operating companies went public. These 2,766 companies employed 5.062 million people prior to going public and 7.334 million in 2010, an increase of 2.272 million employees, or 45 percent. This increase in post-IPO employment works out to 822 jobs added per firm. Note that, in contrast to the conventional wisdom, most of the jobs were created prior to the IPO. In dollars of 2011 purchasing power, in the aggregate these 2,766 companies had $1.32 trillion in annual sales in the year before going public, and $2.58 trillion in sales in fiscal 2010, a 96 percent increase. Inflation-adjusted revenue grew faster than employment due to high productivity growth. The average company going public raised $162 million in inflation-adjusted proceeds, not including an additional $27 million raised by selling shareholders. Since the average company going public created 822 jobs after the IPO, on average every job required an investment of approximately $200,000. In addition to reporting the employment and revenue growth for all companies going public, we categorize firms into emerging growth companies (“EGCs”), which we define as domestic operating companies less than thirty years old that are not spinoffs, rollups, buyouts, or demutualizations; and other companies (from here on, “others”).2 The aggregate employment for the subset of 1,700 EGCs increased from 651,000 employees prior to the IPO to 1.666 million employees in 2010, a 156 percent increase. For these EGCs, aggregate pre-IPO annual sales increased from an inflation-adjusted $134 billion to $481 billion in 2010, a 259 percent increase. Among the EGCs, growth was not uniform. There were standout performers, particularly in technology, such as Amazon, eBay, and Google, and in retail, such as Texas Roadhouse, that are responsible for outsized returns. The 1,066 other non-EGC IPOs, which are frequently larger companies, are responsible for employing more than 5.6 million people and generating $2.1 trillion in annual revenue in 2010, although most of their employees were hired prior to going public. We also examine the fate of all of the EGCs going public. Ten years after the IPO, only 29 percent of the EGCs from 1996–2000 remained as independent public companies. Of those that do not survive, being acquired is much more common than going bankrupt. The survival rates, however, differ markedly by industrial sector. In geographic terms, there is an extraordinary concentration of firms making IPOs in certain states. California is the home to 46 percent of all EGC IPOs, while Massachusetts has the highest per-capita number of EGC IPOs. While New York and Texas also have significant numbers of EGC IPOs, on a per-inhabitant basis they are not as impressive. Within states, there are regions—in particular, the San Francisco Bay Area and Greater Boston—that exhibit extremely high concentrations of EGC IPOs. While aggregate statistics reporting revenue or employment increases provide valuable insights, there are particular firms in our population, such as Amazon, eBay, and Google, that are examples of Schumpeterian innovation, whereby a firm or group of firms can lead reorganizations of entire economic sectors. Their influence cannot be reduced to their internal performance." Source: Kauffman Report linked to above

Keywords: Initial Public Offering, IPO, IPO Performance, Job Growth after IPO

The Daily Beast: Wall Street, not Facebook, Bears Most of the Blame for the Company’s IPO Debacle, May 24, 2012

..."Today, graduates want to work at the next Facebook, and the company’s current share price won’t change that one bit. Today, talented young people want to be in Silicon Valley or Silicon Alley or the next Hewlett-Packard garage. That is part of the Facebook allure, along with the dream of making the world a better place. And if they can get rich as well, why not? One day, just maybe, the same will be said of the financial world. Last week, the two worlds met, and it wasn’t a happy meeting. Facebook has a lot to learn and much to prove, but not nearly as much as Wall Street." Source: The Daily Beast

read the whole article here

Keywords: Facebook, Wall Street

The Economist: Rival versions of capitalism; The endangered public company; The rise and fall of a great invention, and why it matters, May 19, 2012

.."public companies have been central to innovation and job creation. One reason why entrepreneurs work so hard, and why venture capitalists place so many risky bets, is because they hope to make a fortune by going public. IPOs provide young firms with cash to hire new hands and disrupt established markets. The alternative is to sell themselves to established firms—hardly a recipe for creative destruction. Imagine if the fledgling Apple and Google had been bought by IBM."..

read in The Economist why we should worry about the low number of IPOs

Keywords: IPOs, Public Companies

WSJ: Rich Karlgaard: The Future Is More Than Facebook; Social media is already passé in Silicon Valley. America's innovation engine is now focused on transportation, energy and manufacturing, May 16, 2012

Question: If America could have only one of the following—Facebook, Twitter or horizontal drilling—which would be the smarter choice?

Happily, we don't have to make that choice. America remains the world's innovator, a country without limits. read more about America's fascinating innovation power in the WSJ

Keywords: Innovation, Free Market

If two overconfident testosterone loaden banker dealers dance tango for a deal, things might not turn out right. Put them in a cold shower befort starting to negotiate. Values have to do with fundamentals of the business. Take testosterone guys out of the game.

It Takes Two to Tango: Overpayment and Value Destruction in M&A Deals, November 15, 2010

Keywords: Negotiation, Fundamental Business Value

NYT: Morgan Stanley’s Michael Grimes Is Where Money and Tech Meet, May 8, 2012

Silicon Valley doesn’t have much love for Wall Street, perceiving buttoned-up financiers as fee-obsessed number crunchers who don’t really understand technology.

But Michael Grimes of Morgan Stanley, a gadget enthusiast with a computer science background, has managed to become Silicon Valley’s banker of choice for initial public offerings.
read more in the NYT

Keywords: Silicon Valley, IPO

The Capital Spectator: Equity Risk Premium, April 11, 2012

How much should people get paid for investing in the stockmarket?

read more here

Keywords: Equity Risk Premium, Volatility

Interesting article of Felix Salmon on the US IPO market and start-up activity, where the success rate is probably over-estimated:

Reuters: How the IPO market is broken, March 21, 2012

Following fact astonished us:

"It’s certainly true that Silicon Valley is full of ambitious men (and a handful of women) wanting to build enormous companies which will change the world. But from a public-policy perspective, that’s not actually the best way to run an entrepreneurial economy. For one thing, it artificially maximizes failure — many more companies fail than need to. And even the companies that survive do so in a brutal fashion: according to Harvard Business School’s Noam Wasserman, the majority of companies getting to their Series C funding round have already fired their founder from the CEO position, and 18% are on their third CEO or more."

read the whole article on Reuters

Keywords: IPO Market, IPOs, Start Up Activity

WP_2012_03

Keywords: Balance Sheets, Corporate Balance Sheets, Leverage, De-Leverage

Keywords: M&A, IPOs, Exit Valuations

Related:

The Wall Street Journal: No Deal Yet for Groupon Shares, Oct. 22, 2011

Keywords: M&A, M&A Supply, M&A Demand