What type of IPO should AVG use -- a traditional IPO or an online auction? Based on your analysis and findings, what would you recommend to the executives of AVG? Explain your reasoning in detail.
AVG Technologies N.V. is a "consumer-focused IT security" company seeking to "simplify, optimize and secure" the Internet for its users (AVG Technologies, 2013). Founded in 1991 and based in Amsterdam, AVG has aggressively acquiring other companies such as Ewido, Exploit Prevention Labs, Sana Security, Visionize, DroidSecurity, TuneUp, Bsecure, Ookla, and OpenInstall (AVG Technologies, 2013). On February 1, 2012, AVG announced its IPO of 8 million ordinary shares -- 4 million from the company and 4 million from shareholders - @ $16.00/share, to begin trading on the NYSE on February 2, 2012 (AVG Technologies, 2012). Following SEC procedures, AVG filed a Registration Statement with the SEC, which the SEC declared effective (SEC Office of Investor Education and Advocacy, 2013), and the offering was made only by a prospectus (AVG Technologies, 2012). The offering's bookrunning managers were Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Goldman, Sachs & Co., and its co-managers were Allen & Company LLC, Cowen and Company, LLC and JMP Securities LLC (AVG Technologies, 2012).
Given the company's hi-tech nature, aggressive and successful history and current prospects for continuing global expansion, it is likely to attract large institutional investors such as hedge funds and other top clients of large investment banks, in addition to small and even individual investors. On balance, it appears that AVG would benefit most from the traditional IPO process rather than auction-based IPO (Clinton, 2011). First, a traditional IPO enjoys the support of traditional investment banks and other large, established Wall Street investors (and therefore less financial risk in that aspect), which Morningstar and Google forfeited by going the nontraditional auction-based IPO in order to enjoy the advantage of "democratically" reaching millions of small investors (Carter Chalk, 2005). Secondly, a traditional IPO will give AVG the opportunity to rage a higher amount of capital and investment return than it could raise by the nontraditional auction-based route, though a higher percentage of share allocation and of profits from the initial offering will go to large investors tied into the investment banks (Clinton, 2011). On balance, the traditional IPO will be worth the lower number of investors attracted by traditional IPO, the higher percentage of IPO sale as commission, along with other higher underwriting fees for the traditional IPO (Clinton, 2011). Those fees paid in the course of a traditional IPO can be significant, reportedly: a Manager's Fee 10% - 20% of the spread; an Underwriting Fee 20% - 30% of the spread; and a Selling Concession 50% - 60% of the spread. In addition to these fees are SEC fees of $17.40 per million dollars and assessment on security futures transactions of $0.0042 for each round turn transaction, effective May 25, 2013 (Cody & Traderstatus.com, LLC, 2013). Nevertheless, the potentially significantly higher capital raised through this traditional approach is worth the higher fees and concentration of shares/profit in the hands of larger investors. In contrast, the nontraditional auction-based IPO: pays lower fees and costs, though it must still hire a bank, eventually set the amount of shares and the price and pay SEC fees. In addition, while reaching a far larger number of investors for lower IPO costs and possibly more favorable press, the auction-based IPO also risks losing traditional support of staid Wall Street investors, and achieving a lower amount of capital by this IPO (Clinton, 2011).
2) What do you perceive you have learned in the Module 1 Case Assignment? Which of the following learning outcomes do you feel you have mastered?
Module 1 Case Assignment has taught me the steps a company must take in order to go public. The process starts with the S-1 Registration Statement filing, including a prospectus that describes the company to the SEC and potential investors (SEC Office of Investor Education and Advocacy, 2013, p. 1). The SEC then reviews the S-1 for accuracy and rules compliance and possibly directs revision of the form by the company (Kamlet, 1995). After the company complies in making the S-1 acceptable to the SEC, the SEC issues an order that declares the statement "effective," allowing the company to move to the next…