Advantages and Limitations of Going Public through IPO

Business Accounting &
Finance

TABLE OF CONTENTS
1..................................................................................................................................................3
a. Explaining generic advantages and limitations of going as public....................................3
b. Things that motivated Ferrari in going for public..............................................................3
c. Reason behind listing of Ferrari on New York exchange..................................................3
d. Evaluating the secondary and the primary shares sold in Ferrari IPO...............................4
2..................................................................................................................................................4
Explaining IPO over-allotment option and stating reason of choosing this option by Ferrari
in its IPO................................................................................................................................4
3..................................................................................................................................................4
a. Presenting the key tasks that are been executed by underwriter in IPO process................4
b. Explaining the primary considerations that are been taken into account while selecting or
choosing an underwriter.........................................................................................................5
c. The main motivations for syndication................................................................................5
d. Compensation was paid to the underwriters of Ferrari......................................................5
e. Price-stabilization’ activities conducted by the underwriter..............................................6
4..................................................................................................................................................6
‘Book-building’ of an IPO and the price range used by Ferrari............................................6
5..................................................................................................................................................7
Pricing of the Ferrari IPO.......................................................................................................7
6..................................................................................................................................................7
Explaining IPO lock up agreements along with the description of Ferrari’s IPO lock up
agreement...............................................................................................................................7
7..................................................................................................................................................7
Comparing the performance of Ferrari IPO...........................................................................7
8..................................................................................................................................................8
Evolution of capital structure of Ferrari after IPO.................................................................8
REFERENCES.........................................................................................................................10

1.
a. Explaining generic advantages and limitations of going as public
The major advantage of going as public through IPO is an ability of raising the large
capital quickly by way of reaching larger number of the investors. Company could use that
cash for conducting further research, expansion and infrastructure. In addition to this, by
issuing the shares, an entity could be able to generate publicity which in turn helps in
increasing business opportunities. Going public also helps the firm in building their prestige
or reputation across the world as it list the company name on the major stock exchange which
is counted as the main motivator for company o go for IPO route (Nassr and Wehinger,
2016). Moreover, IPO helps the corporations in attracting new talent y offering them with
perks such as stock options.
The major limitation to go for public by using an IPO route is time and the expense
that is involved in going through this process. It is found as very long and time consuming
process that could be of 6 months to 9 months or even longer. At this time, management team
of the company is likely to focus on IPO that could cause the other business areas to suffer.
Further, it cost higher amount of money for going through IPO that is from underwriting fees,
financial service to the filling fees.
b. Things that motivated Ferrari in going for public
The company has a large proportion of debt in which much of are at floating rate. The
credit spreads on the high yield had widened so cost of the rolling over the debt has been
increased (Gagliardo, 2017). This motivated Ferrari to go for public in order to pay down its
debt by getting huge funds through IPO.
c. Reason behind listing of Ferrari on New York exchange
The chairman of Ferrari and CEO of its respective parent company, Fiat Chrysler
Automobiles (FCA) announced prior to the listing year that FCA would be seen as spinning
off the Ferrari Company into the separately traded firm. As independent firm, shares of the
Ferrari (under aptly named ticker symbol that is RACE) would listed on New York Stock
Exchange, with eventual listing in the Milan (Pacheco-Blanco and et.al., 2018). The plan of
Marchionne’s was to sell 10% of the Ferrari’s shares in an IPO and money or funds raised in
an offering would entirely go to the FCA.

d. Evaluating the secondary and the primary shares sold in Ferrari IPO
Primary shares are stated as the shares which are offered for the first time to public
which is called as the initial public offering. Company made an IPO for common shares of
Ferrari N.V. selling around 17,175,000 shares that equates to approximately 9% of the
Ferrari’s share capital. This offering intended to be as the part of the series of the transactions
in order to separate Ferrari from the FCA.
Secondary shares are referred as offering the shares to the existing shareholders where
the company seeks for supporting the healthy secondary market for the purpose of promoting
their brand value, facilitating sale of the new car, benefitting our clients etc (Dambra and
et.al., 2018). the dealers of the firm facilitated inspection service for the clients who seeks for
selling their cars that includes detailed checks on car and certification on which client could
rely, authenticity of car, conformity to the original technical type of specifications and state
of the repair. Furthermore, it offers maintenance and restoration services to classic Ferrari
customers.
2.
Explaining IPO over-allotment option and stating reason of choosing this option by Ferrari in
its IPO
Green shoe option refers to an option allows the firm for intervening within a market
to stabilize its share price during the 30 day stabilization period immediately after the listing.
This option is exercised by Ferrari at the time of making the public issue. Issuer firm make
use of green she option during the IPO for ensuring that price of the share on stock exchange
do not fall below issue price after issuance of shares (Bajo and et.al., 2016). Thus the main
reason behind choosing this option by the firm was to ensure that the opening price of its
shares results to success.
3.
a. Presenting the key tasks that are been executed by underwriter in IPO process
Underwriter seems as an investment bank employed as the IPO specialists which
ensures that in an IPO process, an enterprise satisfies all the regulatory requirements like
filing with appropriate bodies, depositing all the fees & making available all the necessary
financial data to public. They contacts larger number of prospective buyers of the stock like
insurance company, mutual funds corporations who are having large sum of the money to