1. 1 1 What Do I Do Now? - Going Public vs. Selling Out Applying Concepts from Finance to the Public Equity and M&A Markets November 14, 2002 Mark Satisky mark.satisky@duke.edu

2. 2 2 Agenda Equity Investment Alternatives Mechanics of Equity Offerings Mechanics of Mergers and Acquisitions Internship Opportunities Q&A

3. 3 3 Equity Market Alternatives Venture Capital Funding IPO High Yield Debt & Equity Traditional Bank Loans Follow-on Offerings Public/Private Debt Convertible Debt Venture Stage Private Company Mezzanine Stage Private Company Growth Stage Private/Public Company Late Stage Private/Public Company Mature Stage Private/Public Company Private Equity

4. 4 4 Equity Investment Alternatives Venture Capital –Early stage companies –Highest risk Mezzanine Investments –Shorter term investment –Often pre-IPO financing Initial Public Offering (“IPO”) –Sale of equity securities through the public capital markets, subject to SEC rules and registration requirements Secondary Equity Offering –Similar to IPO but for existing public companies –Less cumbersome requirements

5. 5 5 Equity Investment Alternatives Private Investment in Public Equity (“PIPE”) –Direct sale of securities by a public company to sophisticated investors, primarily private equity firms –Recent phenomenon based on decline in stock market, liquidity shortfalls, and unfunded business plans Leveraged buyouts (“LBO”)/Management buyouts (“MBO”) –Later stage, mature companies –Hostile takeovers from 1980’s have been generally replaced by management led takeovers

6. 6 6 IPO Process “Dog and Pony Show” Underwriter selected (Goldman Sachs, Morgan Stanley) Accounting, legal, and financial due diligence and SEC regulations Registration statement (S-1) filed with SEC Series of comment letters Roadshow Stock trading begins Public company requirements

7. 7 7 Mergers & Acquisitions - Types Cash acquisition –Provides easiest liquidity to investors –Generally lower price –Lower upside Stock acquisition –Larger pool of potential acquirers –Generally higher price –Greater potential upside Merger –Two generally equal size companies merge to form one larger new company (e.g. ExxonMobil)

8. 8 8 Mergers & Acquisitions - Valuation Discounted cash flow (“DCF”) analysis –Sum of discounted future cash flows plus terminal value –DCF =  CF/1+r) t + TV –Difficulty determining discount rate (r) Comparable companies analysis Comparable acquisitions analysis

9. 9 9 Mergers and Acquisitions - Process Hire investment bank Solicit bids Due diligence by accountants, lawyers, bankers, other specialists Auction process – 1-3 rounds –Structuring considerations (tax, financial) Handshake

10. 10 Mergers and Acquisitions - Considerations Considerations –Using cash vs. stock –Purchasing assets vs. stock –Access to debt financing –Dilution of shareholders High P/E buys low P/E accretive –Tax and financial structuring –Vesting of stock options –Liabilities

11. 11 Internship Opportunities -Investment Banking -Industry specific group (e.g. Energy, Telecom) -Product specific group (e.g. M&A) -Corporate Finance -Pre-IPO companies (e.g. LipoScience) -Consolidating industry (e.g. AT&T Wireless) -Acquisitive company (e.g. GE) -Asset Management -Private equity/venture capital -Mutual funds (e.g. Fidelity) -Hedge funds -Due Diligence/Valuation -Consulting firms (e.g. Bain, McKinsey) -Big 4 accounting firms (e.g. PwC, E&Y) -Law School???

12. 12 Q&A Questions?