Summary: Direct Public Offerings

Review and Analysis of Field's Book

BusinessNews Publishing

• Publisher: Must Read Summaries
• Year: 2016
• eBook ISBN: 9782806239693
• Topic: Business
• Subtopic: Marketing
• Index: Business

The must-read summary of Drew Field's book: `Direct Public Offerings: The New Method for Taking Your Company Public`.

This complete summary of the ideas from Drew Field's book `Direct Public Offerings` explains how DPOs have now become a viable way for companies to sell stock directly to the public, without the expenses required for traditional IPO processes. In his book, Drew Field shows how Direct Public Offerings deliver significant advantages and opportunities for both investors and companies. By reading the information provided by the author, you will understand what DPOs can do for you and your business, and start making them an integral part of your business plan.

Added-value of this summary:
• Save time
• Understand key concepts
• Expand your business knowledge

To learn more, read `Direct Public Offerings` and find out the benefits of DPOs and why you should never run a business without them.

Summary of Direct Public Offerings (Drew Field)

1. WHY SO FEW CORPORATIONS DO UNDERWRITTEN PUBLIC OFFERINGS

Main Idea

Historically, the securities industry existed mainly to facilitate the flow of capital from individuals to businesses through share ownership. Today, however, investment bankers and others find greater profits in mergers and acquisitions -- rearranging and dismantling -- than in selling stock to individual investors.

Supporting Ideas

In 1961, more than 1,000 companies sold shares to the public for the first time in an Initial Public Offering (IPO). In the 1970s, there were never more than 50 IPOs in any one year. In the 1980s, around 150-500 IPOs came to the market every year. In the 1990s, the IPO market peaked at 608 IPOs in 1994. Yet, over the same time period, the amount of capital on deposit at banks by individuals has grown from $60 billion in 1961 to $900 billion in 1988, while total assets of households has grown from $1 trillion to $10 trillion over that same time period.

In other words, the opportunity for individuals to invest discretionary funds into growing entrepreneurial companies have declined -- not because of a lack of interest on the part of the public or a lack of funds but because of changes in the investment banking industry.

The changes that have occurred in the investment banking industry are:

1. Institutions now dominate today’s stock markets.
   Selling stock (or anything else) to the public is time intensive. By contrast, institutions are run by professionals and have large amounts of capital to invest. Therefore, it makes good business sense for investment bankers to cater to the institutions -- at the expense of catering to individuals.
2. The public experience with performance of some previous IPOs was unsatisfactory.
   Most people believe the post-IPO performance of stocks is rigged, and that many IPOs are over-valued through intensive public relations programs and so forth. There is also a general perception it is nearly impossible to get shares in any really hot IPO -- only in the dregs that no institution wanted to pick up.
3. Consolidation in the securities industry means the smaller stockbroker has almost disappeared.
   The securities industry has consolidated into just 20 or so major companies. The small stockbroker who interacted directly with members of the public has disappeared altogether. Economies of scale have totally re configured the securities industry.
4. Products promoted by the industry have moved away from stock to futures, options and other financial instruments.
   An IPO is a very time intensive process, and the potential returns for the investment bankers are quite variable and dependent on numerous factors beyond its direct control. Greater profits can be made in merchant banking activities (putting money into companies), financial engineering (developing new hybrid securities) and program trading (using computers to identify and exploit momentary discrepancies between different markets) than in commissions on selling stock.
5. The securities industry has moved away from its traditional intermediary role.
   Initially, commissions on selling stocks and bonds were the sole source of revenue for companies in the securities industry. Today, it generates less than 20% of income. Companies are generating revenue from providing research and analysis services, providing financial management services for fees based on the amount of assets under management, etc.
6. Individuals are no longer customers of the securities industry.
   Large corporations, institutions and other members of the securities industry have now become the key focus and priority for companies within the securities industry whereas they once focused solely on serving the individual.

As a result, fewer and fewer companies are doing IPOs, and most of the major IPOs currently coming to market are structured as stock offerings between large corporations and institutional money managers, with individuals missing out on the best investment opportunities.

Key Thoughts

“The public has every reason to believe that the present game is rigged. It is.”

– Donald Regan, former Secretary of the Treasury

“The fact that the primary equity markets have not demonstrated any long-term upward trend as a source of capital since 1933, despite the fact that real Gross Domestic Product has tripled during that period, amply justifies an inquiry into possible regulatory inefficiencies.”

– Securities and Exchange Commission, July 24, 1996

“Institutions, corporations and individuals no longer view the equities markets as viable places to raise capital. The October crash, compounded by insider trading scandals, Boeskyism and a repugnance of corporate raiderism, has made some people very chary of Wall Street.”

– George Ball, chairman, Prudential-Bache

“Bluntly stated, the secur...

Table of contents

• Title page
• Book Presentation
• Summary of Direct Public Offerings (Drew Field)
• About the Summary Publisher
• Copyright