Advance Corporate Finance Case Study 2022

Running Head: Advance Corporate Finance 0
Advance Corporate Finance
(Student Name)

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Table of Contents
Initial Public Offer (IPO)...........................................................................................................2
The motivation for Initial Public Offering (IPO)...................................................................2
Price Setting Process..............................................................................................................2
Underwriting Arrangement........................................................................................................2
Capital Structure before and after the IPO.................................................................................3
Post Initial Public Offering Capital Structure............................................................................3
Offer Price..................................................................................................................................4
Performance of IPO....................................................................................................................4
Conclusion..................................................................................................................................5
References..................................................................................................................................6

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Initial Public Offer (IPO)
People Infrastructure Company headquartered at Australia was listed in 2017 on ASX. They
deal and provides solution related with workforce management. They also provide solutions
in Information Technology, Community Care, general Staffing and Specialist Services. It was
established way back in 2006 and has presence across Australia and New Zealand.
Initial Public Offering is an offering by a corporation by the issuance of its shares to the
general public in the stock market.
The motivation for Initial Public Offering (IPO)
It is one of the options of raising funds from public. It is one of the most popular ways of
raising funds across the world. Some of them are mentioned herein:
A. Access to Risk Capital
This method is one of the best way of raising capital. Sometimes private investors might
not value the company at fair valuation, on the hand public might give them a fair
valuation.
B. Increased Public Image
Post listing the company gets more recognition. More banks will come up and lend to
these companies as the image goes up (Che-Yahya, Abdul-Rahim and Rashid, 2018).
C. Stock Options
The stock option for a listed company can be done very easily.
D. Acquisition and Mergers
Post listing it gets easier to facilitate acquisition and mergers because the valuation gets
public (Ritz, Brewer and Neumann, 2016).
Price Setting Process
There are basically two ways of setting the price in Initial Public Offering namely Fixed Price
Issue and Book Building Issue.

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1. Fixed Price Issue: Under this method the price is fixed on day 1 and it gets
unaffected by the demand and supply of the market.
2. Book Building Issue: Under this a price band is provided to the potential investors.
Investors are left open to choose any price between allotted price band which is
generally decided by the demand (Iyer et al., 2015).
Underwriting Arrangement
The underwriter is a person/corporate who deals that in case the shares are not subscribed by
the public; in that case they will fill the deficit and subscribe to remaining portion.
Underwriting Agreement is formed which contains all the relevant disclosures such as price,
underwriting agent commission, relevant date etc (Papaioannou and Karagozoglu, 2017).
People Infrastructure Company which is headquartered at Australia for the purpose of this
assignment. It is a company which deals and provides solution related with workforce
management. They also provide solutions in Information Technology, Community Care,
general Staffing and Specialist Services. It was established way back in 2006 and has
presence across Australia and New Zealand. They offered 25 million shares to ordinary
public at the price of 1$ each to raise 25$ million (People Infrastructure, 2017). The main
purposes for which the company raise funds are:
1. To share the ownership of the company with its employees;
2. To access the capital market;
3. To repay the debt;
4. To get listed on Australian Stock Exchange;
5. To provide liquidity to its shares;
Company also estimate that they will spent approximately 2.2$ million on this offer (People
Infrastructure, 2017).
Capital Structure before and after the IPO
Capital Structure mainly refers to the total of debt and equity in the books of the company. It
has major 2 constituents i.e debt and equity. The total funding is financed by mix of debt and
equity. Some company raise its major funding through debt whereas some through their
equity. Shares also include preference shares. Under equity the funds can be raised by equity

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shares or stock or preference shares. Whereas under debt it can be raised in many ways such
as by long term or short term borrowings or by issuance of debentures. Before this issue the
company had close to 3,9,44,200 shares outstanding in the market (ASX, 2019).
In general case before the issuance of shares in public the most or all of the shares are held by
the founder or promoter of the company. As in case of private companies one or two persons
can keep entire shareholding thereby promoter retaining the entire stake, therby no dilution in
promoter’s stake. There were 5 big before the issue holding more than 5% holding 12%, 9,9
and 5 respectively.
Shareholding of People Infrastructure before and Post IPO
Shares held
prior to
completion of
IPO
Shares issued
under the Offer
and the
Convertible Note
Conversion
Shares held on
completion of
IPO
Percentage
held on
Completion
of offer
Existing Number
of Shares 23343356 shares 15700844 shares
39044200
shares 69.06
New Shares
issued as part of
IPO - 25,000,000 25,000,000 39.04
Total 23343356 shares 40700844 shares
64044200
shares 100
Post Initial Public Offering Capital Structure
Generally after company gets listed on the bourses the capital structure changes drastically.
From being having just one or two members, post-IPO the number of members may increase
to any such number like 1,000 or even 1,00,000. As there are many shareholders who hold
one or two shares but are equal members of the company. Thereby the ownership gets
divided between many peoples and other organisations. Post IPO the total number of shares
outstanding in the market are 6,40,44,200 (Zeitun, Temimi and Mimouni, 2017).
Offer Price
Pricing Initial Public Offering is one of the most complicated parts of the whole process of
IPO. This is price where the company values itself. It takes years to decide the timing and
price of IPO and to ensure that their IPO is fairly valued.

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The offer price is generally set up by the game of demand and supply. Is is the price which
determines the failure and success of IPO (Fjesme, 2016).
There are some factors which are to be kept in mind while coming to pricing of IPO. Some of
them are mentioned herein:
A. Demand: One of the most important factors while pricing the IPO. Company must
expect how are financials of the company, the popularity of the company and other
factors. Also the timing matters, the market economics decide how much the company
can be valued. It could happen two companies doing identical business may and also
similar in size may have different market valuation owing to market conditions.
B. Comparison: It is important that the company should be valued fairly. If similar
company is listed on the bourses, then the company which is planning to list can see
its own valuation and compare the two. Obviously the consumer will not pay more for
unlisted company as against the price s at which already listed company is valued.
Therefore the IPO should not be expensively valued and also not cheaply valued.
C. Growth Prospects: Generally IPO is valued considering its future expansion plans as
the main motive behind IPO is raising funds in the future easily. A listed company
often gets easy funding as against unlisted company because listed company gets a
public image (Balasubramanian and Radhakrishnan, 2016).
Performance of IPO
The simplest way of measuring the IPO is to see that how much return a IPO has given in a
stipulated time period which may as low as 1 day, 1 week, 1 months or it even be 1 year. In
general people invest in the IPO for first day gain. People apply for an IPO and wait for its
listing and if they are satisfied that they have got their money back from the IPO, they sell.
Only few investors keep the shares for long term investment purpose (Zattoni et al., 2017).
Under-pricing is a concept under which the price of just listed company’s shares is well
below the price at which it was offered to the market. As per the data, Australia has seen
underperformance of IPO from 11% to 100% during the year 1996 to 2004.
People infrastructure was listed in 2017 at the price of 1$, currently it is trading at more than
3$ which means that the price has tripled within the gap of just 2 years which is tremendous
performance from a mid-sized company. It touched its all-time high of 3.69 in July 2019. Still

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many people who invested in the public offering are happy with their decision as the returns
are fruitful and fulfilling. Also the company pays regular dividend to its shareholder which is
also a reason for the success of the IPO (People Infrastructure, 2017).
Conclusion
Hence it can be concluded that IPO is another way of value creation for all kinds of
stakeholders involved in it may it be shareholders who invest their money or underwriters, or
merchant bankers or even company itself. The decision of coming with IPO has far-reaching
impact starting from its operations to daily operations of the company. Companies want to
solidify their position beyond its limited shareholders, benefitting from the public image the
company has created for itself over the number of years, also obtaining the fair valuation
from the market which it possesses. Further it also provides liquidity for its shareholders, as
shares can be traded freely without any restrictions. The company is fairly valued only after it
get listed on the bourses as market participants provides the valuation of the company.
Sometimes it is always suggested that the people should wait for the opportunity to buy a
stock when it gets fairly corrected so that when it touches its new high there is an ample
opportunity to gain maximum rewards. Also IPO is an best opportunity to convert their
wealth into fortune, as the price goes up, more will the wealth for them. Generally analyst
gives the guidance to invest in those IPO’s which are fairly valued and the fundamentals are
strong. IPO always creates fortune of oppurtunities for the investors.Volatility is a part of
stock market. Price keep goes up and down, up and down. Therefore value creation is in
direct relation with IPO valuation. If the IPO recives strong response the valuation goes up
and if there is tepid response it goes down. It is a fact company after getting public, the
growth of the company multiplies and profit also zooms. In the last decade almost 70-80% of
the IPO has seen positive response from the market which tells you the story that market is
always curious and anxious about new listing.

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References
ASX. (2019) PEOPLE INFRASTRUCTURE LTD [Onine]. Available from:
https://www.asx.com.au/asx/share-price-research/company/PPE [Accessed on 12/10/19]
Balasubramanian, P. and Radhakrishnan, R. (2016) Growth of Initial Public Offering in
Different Sectors with Reference to Coimbatore Stock Exchange. Journal of Commerce and
Management Thought, 7(3), pp.478-487.
Che-Yahya, M., Abdul-Rahim, R. and Rashid, R.M. (2018) The influence of" offer for sale"
by existing shareholders on investors’ reaction in the IPO immediate aftermarket. Business
and Economic Horizons (BEH), 14(1232-2019-872), pp.818-828.
Fjesme, S.L. (2016) Initial public offering allocations, price support, and secondary
investors. Journal of Financial and quantitative analysis, 51(5), pp.1663-1688.
Iyer, G.R., Xiao, S.H., Sharma, A. and Nicholson, M. (2015) Behavioral issues in price
setting in business-to-business marketing: A framework for analysis. Industrial Marketing
Management, 47, pp.6-16.
Papaioannou, G.J. and Karagozoglu, A.K. (2017) Underwriting services and the new issues
market. New York: Academic Press.
People Infrastructure. (2017) Annual Report [Onine]. Available from:
https://www.peopleinfrastructure.com/wp-content/uploads/2017/10/2385-People-
Infrastructure-Prospectus-v9.2_forms_LR.pdf [Accessed on 12/10/19]
Ritz, A., Brewer, G.A. and Neumann, O. (2016) Public service motivation: A systematic
literature review and outlook. Public Administration Review, 76(3), pp.414-426.
Zattoni, A., Witt, M.A., Judge, W.Q., Talaulicar, T., Chen, J.J., Lewellyn, K., Hu, H.W.,
Gabrielsson, J., Rivas, J.L., Puffer, S. and Shukla, D (2017) Does board independence
influence financial performance in IPO firms? The moderating role of the national business
system. Journal of World Business, 52(5), pp.628-639.

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Zeitun, R., Temimi, A. and Mimouni, K. (2017) Do financial crises alter the dynamics of
corporate capital structure? Evidence from GCC countries. The Quarterly Review of
Economics and Finance, 63, pp.21-33.