Valuation and IPO Strategies of Rosetta Stone

Rosetta Stone has won several awards, including the Deloitte Technology Fast Award and the Stevie Executive of the Year Award. The company uses a market multiples method for valuation, which is more precise than other methods but has limitations. Rosetta Stone also plans to go public through an initial public offering (IPO), which will enhance its credibility with suppliers, customers, and lenders, improve credit terms, and provide a public valuation of the organization. However, IPOs can also lead to dilution of control for shareholders, high liquidity requirements, and reduced freedom in decision making.

Financial Entrepreneurial Initiatives
Rosetta Stone: Pricing the 2009 IPO

Table of Contents
INTRODUCTION .....................................................................................................................................3
1 Key features of Rosetta Stone’s business model and explain its core business strategy ....................3
2. Advantages and disadvantages of Rosetta Stone undertaking an IPO...............................................4
1.Evaluate the use of Market-Multiples approach for Rosetta Stone in determining an exit value.......7
4 Calculation of suitable share price for Rosetta Stone’s IPO using Market-multiples approach and
considerations would need to be made ..................................................................................................8
5. Reasonable rate of return on an investment in Rosetta Stone..........................................................12
6. Free Cash Flow model to Rosetta Stone to arrive at a valuation .....................................................13
7. Offer price for the IPO ....................................................................................................................16
CONCLUSION .......................................................................................................................................17
REFERENCES ........................................................................................................................................18

Rosetta Stone
Financial market are those in which financial securities, commodities and other fungible items
are traded at various costs (Madura, 2014). The securities traded in financial markets includes stocks,
bonds, commodities etc. Initial public offering is the crucial sources of raising funds from the market
through offering equity and preference shares even debentures to public (Chemmanur and Krishnan,
2012). This is an initiative taken by an organization to public its stock however, is a long process to
register a company for IPO.
The report herewith is based on a case scenario of an USA based global education technology
Software Company, “Rosetta Stone” which deals with Language-Learning solutions products. As per
the case, business entity is moved further to the deal of going public in 2009. Therefore, this
investigation represents the advantages and disadvantages of Rosetta Stone to undertake an IPO.
Including this, key features of Rosetta Stone’s business model and its core business strategy are
explained in this report. Furthermore, Market-Multiples approach for Rosetta Stone is used to
determine an exit value along with calculating reasonable rate of return on an investment and free Cash
Flow model is applied to arrive at a valuation.
Key features of Rosetta Stone’s business model and explain its core business strategy
Rosetta Stone is an USA based global education technology Software Company deals with
developing language, learning and brain-fitness software. The organization is significantly known for
its innovative Language-Learning solutions products.
Business model of Rosetta stone
From the beginning, organization has started seeking more natural learning methods, therefore,
business model of Rosetta Stone is to use commuter technology to simulate the way people learn their
native languages. Along with this, business entity uses pictures and sounds to impart learning to the
individuals. The core area of business model is that how computer can be used to facilitate language
learning. In 1992, Stoltzfus and Fairfield came with Fairfield language technology, further the
emergence of CD-ROM technology has supported business of the cited company. The business model
of cited Company is specifically designed to distinguish the firm from other language companies and to
create an environment conducive to learning language naturally. The business model of company was
flexible and focused towards innovation. Further, in the year 1999, the organization has released its first
retail language training software product. The organization is continuously using series of CD ROMs
which is emerged as an effective ways to impart new learning to the individuals.
Business strategy of Rosetta Stone

Market share and growth of Rosetta stone is very high because it offers opportunity to the
learners to develop their understanding in relation to the different languages. Moreover, now students
and other people have desire to develop knowledge about varied languages with the aim to enhance
their potential. In addition to this, demand for such language learning is very high. Along with this,
there is high growth potential for the firm in terms of increased profitability and large customer base.
However, according to the cited case situation growth potential of such business sector decreased from
91% to 52% during 2004 to 2008. Hence, by considering such aspect business unit needs to make focus
on promotional aspect. This in turn helps Rosetta Stone in developing awareness among the potential
learners.
Further, case situation describes that expenses of the firm are increased with the very high pace
such as 77% in comparison to the sales revenue growth (66%). In addition to this, R&D expenditure of
the firm also increased by 72%. Thus, company needs to make focus on promotional strategies to entice
sales. Along with this, business unit also needs to make competent strategies which help them in exert
control over the expenses. Hence, by considering all such aspects Rosetta Stone can exert control over
the expenses. The impressive financial growth with 53% increase in revenues has supported decision
despite the global economic contraction. In this regard, by launching IPO Rosetta Stone can generate
money for the purpose of growth and expansion.
Advantages and disadvantages of Rosetta Stone undertaking an IPO
Advantages Disadvantage

 The major advantage of IPO (initial
public stock offering) for Rosetta is that
is can easily access to large amount of
capital from external sources, on which
no interest charge would be charged, but,
dividends are to be paid to investors in
terms of rewards against risk.
 Time involved in the process of going
public is one of the main drawbacks which
crates problem in front of Rosetta stone. A
long process associated with IPO process
which includes prepare registration
statements, consulting with investment
bankers, attorneys, and accountants, is
going to affect the company's management
(Reed and Rocholl, 2010).
 As an advantage of IPOs, the aforesaid
company can increase public awareness
or can create a brand image which is
further supportive in grabbing new
opportunities and increasing customer
base (Chemmanur and He, 2011)
 The initial public offering can be
extremely expensive which another
disadvantage is for the cited company. The
expenses include the lead underwriter's
commission; spending on legal services,
printing costs, and the personal marketing
etc. The cost of dividend is going to be an
issue associated with initial public offering
of Rosetta stone.
 The organization can easily obtain capital
for future needs in terms of offering
equity and debt financing sources in the
public which was a proper solution of
limited corporate investment as from
public sources company can raise huge
amount which can be further invested into
new deals.
 In addition to that, disadvantages of IPO
involve loss of confidentiality, flexibility,
and control over the business as public
company has to release all operating
details to the public along with sensitive
information of business regarding future
plans (Chemmanur and He, 2011).
Valuation of IP for Rosetta stone’s
Valuation & offer price
Price Valuation: $38048
Original price projection: $15-$17
Offering price: $26
Issuing share: 6.25million share
However, the cost of IPO in USA is The cost of IPO in USA is approximately $1 million which
includes listing, printing and legal fees etc.
The IPO process of US is quite typical which was going to be followed by Rosetta stone it its
goes for initial public offerings. The process is completed in almost three months hence, is a long
process, which is going to be a disadvantage for firm (Blum, 2011).

 Prior to initiate for a process, it becomes important to carry out a meeting with qualified
management team or board of directors to discuss about equity-issuance process. Including this,
board of members or responsible persons have to discuss about the IPO deals with various
investment bankers, lawyers and accountants before selecting a lead underwriter for which a
significant cots is to be paid (Plotnicki and Szyszka, 2014). However, some additional meeting
are also to be initiated in mid for discussing on problems and reviews. The guidelines of SEC
prohibited company to carry huge publicity for company’s name, products and geographic
locations, but, a normal advertisement can be created.
 The process further involves preparation for prospects which is prepared to gain specific
attention from parties along with this the company has to provide make a due diligence in which
management shows that nothing in untrue and not a single misleading information about
company is quoted in the registration statements.
 The process of underwriting then stared in which number of investment banks who are agreed to
buy portions, after then SEC review period started, After reviewing the registration process,
letter of comment received from SEC is received. After completing this three months of long
process the organization can trade in equity shares as by getting effective dates and share
offered (Blum, 2011).

Figure 1IPO process in USA
Evaluate the use of Market-Multiples approach for Rosetta Stone in determining an exit value
Defining of Market-Multiples approach
The market multiples approach is well known valuation theory which is based on the idea that
similar assets are sold at the same prices. This popular formula for stock valuation assumes that various
ratios have compared value such as operating margins, are found same across similar firms. In addition
to this, companies which make use of such market multiple approach also face difficulty in assessing
the suitable comparable. Moreover, elements which are taken for the valuation are highly differs from
one organization to another. In this regard, business unit needs to undertake absolute valuation method
to determine the value. The major benefits of this method is that it offers highly realistic solution or
outcome on the basis of cash flow analysis. On the other hand, relative value model emphasizes on
making decision according the worth of competitors. Hence, by taking into account such aspect it can
be stated that absolute value method is highly effectual in comparison to the relative model. Further,
along with the macro, micro environment also have high level of impact on the growth and success of

firm. Hence, by considering only macro factors business organization is not able to prepare competent
framework.
Market multiple valuation for Rosetta Stone
The market multiple valuation is going to be an effective method for Rosetta Stone to determine
stock valuation, therefore, it is important to find out the comparable company of mentioned
organization. Some of the comparable companies for Rosetta Stone are Apollo, American public
education, Corinthian college, Career Education Capella, DeVey, IIT, K12, Grand Canyon, New
Oriental etc. In the process of determining an exit value of firm using market multiple method, first
process is of identifying comparable assets and market values for such assets. After that, the market
values are to be converted into standardized values as comparison among absolute prices cannot be
done accurately, the process is called as valuation multiples (Moore, Filatotchev, and Rasheed, 2012).
This is going to be a simplistic method through which provide useful information about relative value.
Calculation of suitable share price for Rosetta Stone’s IPO using Market-multiples approach and
considerations would need to be made
According to the given case scenario, the organization is going to make an IPO in 2009 hence,
the method of market multiple is used so as to calculate suitable share price for Rosetta stone’s IPO.
Here, is the calculation of suitable share price. The valuation of enterprise is divided by earnings before
interest and taxes and dividend through which average of companies is going to be extracted (Money
and zine, 2016). Here, for calculation most important aspect which is to be considered is of Price-to-
earnings or PE ratio that is specifically used as multiple (Voit, 2013). The companies with lower values
are seen undervalued as compared to peers, on the other hand, other things remain same as they are. In
addition to that, next thing which is to be considered is of Enterprise value, which is denoted as a
market capitalization of an organization which is adjusted by removing the possible effects of financial
assets and obligations (Palea, and Maino, 2013).
Calculation of IPO share price

EV = Market Capitalization + Debt + Minority Interest – Cash & Cash Equivalents – Investments
(Valuation: Market Multiples Method. 2016)
Profit educations
Profit educations
Appolo Group Inc.
American Public Education Inc.
Corinthian Colleges, Inc.
Carrer Education Corp.
Capella Education
Strayer Education
DeVry Inc.
ITT Educational Services Inc.
K12 Inc.
Grand Canyon Education Inc.
New Oriental Ed.&Tech. Group, Inc.
0
5
10
15
20
25
30
35
9.7
20.5
11.6
6.8
13.4
17.8
12.5
10.1
13.4
30.2
23.8
7.2
13.8
7.8 6.8
10.3
14.1
9.6
7.4 8.7
11.5
17.2
Ev /EBITDA (2008)
Ev /EBITDA (2009)

Internet
Internet
Appolo Group Inc.
American Public Education Inc.
Corinthian Colleges, Inc.
Carrer Education Corp.
Capella Education
Strayer Education
DeVry Inc.
ITT Educational Services Inc.
K12 Inc.
Grand Canyon Education Inc.
New Oriental Ed.&Tech. Group, Inc.
0
5
10
15
20
25
30
35
40
45
19.2
42.4
28.7
19.5
31.5 33.2
23.2
19 18.3
32.9
14.5
29.3
18.1 20
23.4 25.8
17.5
13.6
35.4
24.3 24.5
PE ratio (2008) PE ratio (2009)
Activison Blizzard Inc.
Amazon.com, Inc
Dice Holdings Inc
Drugstore.com, Inc.
eBay
Google
GSI commerce
Tech Target Inc.
WebMd Health Corp.
Electronics Arts Inc
yahoo!Inc!
0
10
20
30
40
50
60
18.5
53.8
12.3 12.8
23.6
45.8
32.6
17.2
47.9
25.7
17.1
20.7
46
24.1
37.3
Price/EPS (2008)
Price/EPS (2009)
Activison Blizzard Inc.
Amazon.com, Inc
Dice Holdings Inc
Drugstore.com, Inc.
eBay
Google
GSI commerce
Tech Target Inc.
WebMd Health Corp.
Electronics Arts Inc
yahoo!Inc!
0
10
20
30
40
50
60
70
80
90
100
6.9
27.1
4.5 7
13.2 12.2 8.8
18.1
10.2
6.9
23.6
6.9
91.1
8.1 11.3 10.6 11.3 16.4 11.5 10.3
EV/EBITDA (2008)
EV/EBITDA (2009)

Software
Software
Using this method, the value of enterprise is divided by the total attributable ounces to each
company in terms of market reserves (Palea, and Maino, 2013). The potential ratio is beneficial in
assessing companies’ valuation as it becomes difficult to measure actual amount of deposits. The
average of EV/ EBITDA is 15.43, this data was for the year 2008, on the other hand value of EV/
EBITDA in 2009 is 10.4 it means value for enterprise is declined in 2009as compared to previous year.
The average of PV ratio for the year 2008 is 26.79, whereas in 2009 it has been declined by 22.4
(Value/EBITDA Multiple. 2016).
Price/EPS (2008)
Price/EPS (2009)
Adobe systems
ArcSight Inc.
Intruit
Microsoft ft
Omniture
Sales force.com
Sysmantec
McAfee Inc
Vmware Inc
0
10
20
30
40
50
60
70
14.9
19.5
10.2
0 0
9.4
26.1 27.1
22.9
52.8
16.2
12
0
57.7
9.5
24.1
33.9
Adobe systems
ArcSight Inc.
Intruit
Microsoft ft
Omniture
Sales force.com
Sysmantec
McAfee Inc
Vmware Inc
0
5
10
15
20
25
30
35
40
45
8.6
39.2
9.2
5.9
16.4
35
4.7
12.3
21
12.6
21.8
7.9 6.8
9.6
20.7
4.9
10.1
23.8

Reasonable rate of return on an investment in Rosetta Stone
The following section represents the calculation of rate of return on an investment in Rosetta Stone. For
the calculation of risk free rate of return CAPM model is used which is showing the rate which is
earned by an investors against its investors in the company. Following are the assumptions of
discounting factor rates:
K(e) = Risk -free return + beta (Rm-Rf)
k(e) = 2.87% + 0.8120 (6.50%)
k(e) = 8.15%
CAPM Assumptions
K(e) 8.15%
RFR (US yield curve data for 10 year on 1/30/2009)) 2.87%
Beta 0.812
Rm-Rf (Risk premium for long term yield) 6.50%
The model an above used is based on an assumption that market volatility affects the returns of
a firm. The required rate of return is calculated at 4.46 % which the investors in the cite company will
get returns against the risk of investing money in the company. The beta is identified from financial
time which is 0.37 showing a moderate risk on investors. The market return premium was 6.5% which
is selected lower given in the case study.
Free Cash Flow model to Rosetta Stone to arrive at a valuation
Computation of free cash flow and present value FCF

The Free cash flow valuation model is used to calculate stock price which are based on
estimating operating free cash flows. The cash flows are further discounted on the basis of appropriate
discount rate. The use of operating free cash flow model is used by Rosetta Stone's to show the cash
generation ability as prior to pay interest as well as other non-cash affecting transactions. As per the
approach of free cash flow, FCF formula is exaplained in the following points.
OFCF = EBIT (1 – T) + depreciation – Capital expenditures – working capital – any other assets
Using this method, weighted average cost of capital (WACC) is computed through using debt
and equity ratios in an organization, through which a capital structure is identified. According to the
given case, WACC for the organization is 2.03% which is further determining the potential values of
projected cash flows. The cost of capital is further calculated on the basis of values such as market
capitalization and Enterprise value (EV). Here formula is include in the following method

Offer price for the IPO
The overall calculation using DCF model represents that value of offer price is $12. On the
basis of the calculation mentioned in appendix it can be said that market multiple is $28.05 in
accordance with EC/ EBITDA. In contrast to this, according to the formula of price/EPS value of the
market multiple is $ 20.54. Further, by considering the aspects of market multiple approach past
performance of the several companies related to such industry has been analyzed. Thus, it is
recommended to Rosetta Stone that it needs to consider the formula of price/EPS. The rationale behind
this such method undertakes industrial average and thereby offer suitable outcome. Besides this, it also
considers competitors share price and return generated by the investor. Hence, Rosetta Stone should set
$20.54 price for offering shares to the general public at large. There is no huge impact on high and
lower price of IPO in the stakeholders. Moreover, they do not have awareness regarding the valuation
aspect of the firm. At the time of making investment, investors only consider the growth level and
credit rating of the firm.
CONCLUSION
The report above concluded that Rosetta Stone’s decision for going public was an opportunity
to establish business creditably and creating an strong brand image in global marketplace. Market-
Multiples approach for Rosetta Stone and free Cash Flow model is applied to arrive at a valuation
indicated that business has to keep low offer price.

REFERENCES
Books and Journals
Blum, R., 2011. IPO timing determinants. Duke University.
Caution, I., Platt, H.. and Platt, M.2011 Free Cash Flow. SAGE
Chemmanur, T.J. and He, J., 2011. IPO waves, product market competition, and the going public
decision: Theory and evidence. Journal of Financial Economics, 101(2), pp.382-412.
Chemmanur, T.J. and Krishnan, K., 2012. Heterogeneous beliefs, IPO valuation, and the economic role
of the underwriter in IPOs. Financial Management, 41(4), pp.769-811.
Holthausen, R.W. and Zmijewski, M.E., 2012. Valuation with Market Multiples: How to Avoid Pitfalls
When Identifying and Using Comparable Companies1. Journal of Applied Corporate
Finance, 24(3), pp.26-38.
Madura, J., 2014. Financial markets and institutions. Nelson Education.
Moore, C.B., Filatotchev, I. and Rasheed, A.A., 2012. Foreign IPO capital market choice:
Understanding the institutional fit of corporate governance. Strategic Management
Journal, 33(8), pp.914-937.
Palea, V. and Maino, R., 2013. Private equity fair value measurement: a critical perspective on IFRS
13. Australian Accounting Review, 23(3), pp.264-278.
Park, K. and Jang, S.S., 2013. Capital structure, free cash flow, diversification and firm performance: A
holistic analysis. International Journal of Hospitality Management, 33, pp.51-63.
Plotnicki, M. and Szyszka, A., 2014. IPO market timing. The evidence of the disposition effect among
corporate managers. Global Finance Journal, 25(1), pp.48-55.
Reed, A.V. and Rocholl, J., 2010. The new game in town: Competitive effects of IPOs. The Journal of
Finance, 65(2), pp.495-528.
Voit, J., 2013. The statistical mechanics of financial markets. Springer Science & Business Media.
Online
Money and zine, 2016. Calculating Stock Prices. [Online]. Accessed from <http://www.money-
zine.com/investing/stocks/calculating-stock-prices/>. [Accessed on 21st July 2016].
Value/EBITDA Multiple. 2016. [Pdf]. Accessed from
<http://people.stern.nyu.edu/adamodar/pdfiles/vebitda.pdf >[Accessed on 21st July 2016].
Valuation: Market Multiples Method. 2016. [Online]. Accessed from <
https://fininitio.wordpress.com/2011/02/24/market-multiples/ >[Accessed on 21st July 2016].

APPENDIX
Computation of the industry market multiple as well as FCF and present value of FCF

Along with this, Rosetta Stone also has used porter five forces model to build competent and
strategic policy framework. Moreover, according to such model there are mainly five factors which
closely influence the growth and success aspect of firm. It includes bargaining power of buyer, supplier,
threat to substitutes and new entrants as well as internal rivalry. On the basis of the cited case situation
Rosetta is offers online learning facility to the people. In this, threat from new entrants and substitutes
are high. The reason behind this students prefer to visit different sites for learning the varied aspects.
Further, bargaining power of buyer is higher in this sector as compared to the suppliers. Along with this,
intensity of rivalry is not very high in this sector. Hence, by offering innovative learning opportunities
business unit can build and sustain competitive edge over others.
An a compirtiotive strategy, the company has expanded n manufactiring and distribution to reach to
success. The organization is commited to minimise costs by achieving efficient in mannufacting. The
sales channle have alos bene aranged to minimise the logistic cost.
Language learning facility offers by Rosetta stone through the means of online channels.
Moreover, now online channels offer high level of convenience to the customers. Thus, by taking into
consideration such aspect business unit has decided to employ this channel. Further, target customers of
Rosetta stone includes professionals and students who have desire to learn different languages. Further,
revenue will be generated by the firm through offering of the varied learning languages. Along with
this, cost is incurred by Rosetta stone on the website maintenance etc.
The risk of takeover by other company with the needed resources, was there on Rosetta Stone.
The private investors was also concerned about recognising the gains achieved through investing in the
mentioned company, however, there was a uncertainty of taking a relatively young company in the
market, Adams, a CEO of mentioned company moved further to the deal of going public in 2009. The

decision for going public was an opportunity for aforesaid company to establish business creditably as
well as it was going to support corporate entity in building a strong brand image in global marketplace.
Being a private company, Rosetta Stone is evident with limited corporate investment as from
private sources company was raising limited amount of capital. Further, from the case study, it has
been evident that Rosetta Stone was one among the companies which can have successful IPO. Hence,
by taking into consideration such aspects business unit has taken decision in relation to launching IPO.
Moreover, cost associated with IPO is very less than the issuance of debt instruments. Moreover, in the
case of IPO business unit has to incur money only for once. In contrast to this, issuance of debt
instruments impose periodical financial obligations in front of the business unit. Moreover, in the case
of debt instruments company is obliged to make payment of interest to the debt holders on a periodical
basis .
Growth rate and credit rating are the main indicators which provide deeper insight to the
investors about the extent to which firm will achieve success in the near future. In accordance with the
current market situation, business unit needs to make focus on setting the suitable price for IPO.
Moreover, when lower prices are setting by the firm then investors are hesitated to make investment in
the firm's securities. On the other hand, high value of IPO gives indication regarding the speculative
activities. If the opening price is lower than offering price then demand for the shares are continuously
decreasing and vice versa. Hence, it is highly required for the firm to set suitable share price and
thereby attracts large number of existing and potential investors.
The core business strategy of Rosetta Stone is to combined in language learning software with
test, images, sounds to teach various vocabulary terms and grammatical functions, initially the company
has focused towards school and government sales then it moved towards retail market in 2001. The
mentioned company has announced hiring of Tom Adams, who is a businessman with international
experience, as a CEO, which is found be the core strategy for getting an international exposure. He
played an important role in guiding the company’s expansionary strategy. The core competences of the
business includes Pedagogy, Widgets, Speech, community and live features. The company is creating
new value in the economy through continuous innovations. The name of company was changed in
2006 to Rosetta Stone, Ltd as it converted business from an S to a C corporation. With a unique
business strategy of going public, the company has filed an Initial public offering with the Securities
and Exchange Commission, how, after 2009, the organization is listed New York Stock Exchange. In
2008, Rosetta Stone has won Deloitte's Technology Fast Award and in 2009, it was awarded with 9
Stevie Executive of the Year Award.
In addition, this method is more ‘precise’ than discounted cash flow valuation or EVA and helps
users to avoid the possible misleading precision. The advantage of using such method is that multiple
valuation method considers key statistics that are used by investors hence, is a reliable method for

Rosetta Stone in determining an exit value. However, the limitation of using this method is that it is not
suitable to capture the firm’s valuation in dynamic and ever-changing business scenario and
competition. Furthermore, in case peer group or comparable companies have incorrectly valued their
assets then it can result into misevaluation (Valuation: Market Multiples Method. 2016).
In other words, the companies deal with similar business, in same industry and in same macro
environment, might have similar performance (Valuation: Market Multiples Method. 2016). For
example, the companies have same beta, profit margins, growth prospects as well as have similar
valuation multiples (Holthausen and Zmijewski, 2012). The main benefits of using such approach is
that companies can frame strategic framework without making in-depth analysis. However, on the
critical note, different business organizations adopt different methods to find out the amount of
depreciation. In this way, values of assets of different companies are highly varied from each other to
the large extent. Thus, it is not possible that companies who have similar asset will sell them at same
prices. In this way, treatment of the assets in balance sheet is high varied from one organization to
another.
 The market awareness can be further
created as in IPO process, information
about the company is printed in
newspapers which is circulated over the
globe, and hence, company can generate
increased attention in media and among
existing and potential customers (Reed
and Rocholl, 2010)
 Initial public offerings can enhance the
credibility of Rosetta stone with its
suppliers, customers, and lenders, which
is going to improve credit terms. Hence,
it could be said that an initial public
offering offers a public valuation of
mentioned organization.
 By listing the shares through the means of
IPO business organization can maintain
high level of liquidity.
 In the case of IPO, business unit is obliged
to prepare and publish their annual
statements to provide information to the
stakeholders such as investors etc. Hence,
in this if business unit fails to attain
desired level of profit margin then it
negatively affects the decision making
aspect of the potential investors.
 IPO also offers opportunity to Rosetta
stone to acquire the business organization
which is listed on the recognized stock
exchange. Further, it also facilitates
merger activity and thereby enables firm
to maximize both productivity and
 High dilution of control of shareholders in
the firm's operations and functions is one
of the main drawbacks of IPO. Moreover,
it closely affects the company's freedom in
relation to decision making regarding the
operations and functions.

profitability by expanding the business
operations and functions.