November 21, 2005
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Celoxica recently became the first ESL firm to go public. This week's editorial covers that event, IPOs in general as a source of financing and the London Stock Exchange where Celoxica's IPO happened.
September when Celoxica announced its intention of filing an IPO, the firm said that is was hoping to raise as much as £10 million.
Celoxica is based in Oxfordshire in the United Kingdom but also has a strong presence in Austin, Texas. The company which traces its history to the Computing Lab at Oxford University employs about 50 people. The firm has licensed approximately 400 commercial seats of its design tools, across a broad range of industries to around 100 customers.
When the company started in 1991 it raised about $30 million. In 2001 it raised another $30 million. Investors in Celoxica include VC firms Advent, Cazenove and Quester and industry investors Intel Capital, Xilinx, Wind River and Creative.
The table below presents some financial data taken from the firm's prospectus.
Phil Bishop, CEO of Celoxica, commented: “We are delighted with our AIM listing, which is an important step in Celoxica's strategic development. The growing complexity of digital electronics combined with challenging and aggressive development schedules are increasing the demand for our design solutions, a trend that is predicted to continue.”
Sinvce previous editorials have covered Celoxica, I will move on to IPOs in general.
IPOs in General
forth. This may require the exchange of equity for investment. This introduces the concept of dilution. Existing shareholders end up owning less of the company. However, having a smaller percentage of a firm with greater potential may be better in the long run. Investors may also offer non-monetary assistance as well.
preferred stock and go to the head of the line if and when a firm is liquidated. Founders and current employees may be required to sign multi-year employment agreements in order to reap the benefits, after all the main asset of a company is likely to be its employees.
In the case of a merger or acquisition the acquiring party generally provides significant non-monetary benefits. In the EDA industry the major players like Synopsys, Cadence and Mentor, can provide a small firm who has new and exciting technology with worldwide sales and marketing operations as well as a large installed customer base to sell into. In the aggregate the big three EDA firms spend more money on acquisitions than on R&D. Assuming thorough technical due diligence, acquisitions provide them more timely and less risky access to new technology than internal development. The potential of a future IPO gives small firms leverage in negotiating sales price with acquiring firms.
aggregate pretax earnings over the last 3 years of $10 million, a minimum of $2 million in the two most recent years and positive in the third year.
According to Hoover's there were 64 IPOs in the third quarter of 2005 for a total value of $9.8 billion. This compares to 62 IPOs in the third quarter of 2004 for a total of $14.1 billion and to 47 IPOs in the second quarter of 2005 for a total of $7.5 billion.
According to NASDAQ the pros and cons of going public are
As the old adage says “There is no such thing as a free lunch.” The preparation of the IPO is itself a major distraction for the executive team The IPO process can take 12 to 20 weeks depending upon a firm's starting point. The Securities Act of 1933 and the Securities Exchange Act of 1934 requires the filing of certain documents before registration, e.g. Prospectus, and after issuance to keep existing and potential investors informed about a company's business and financial conditions. After the IPO ongoing financial reporting requirements include
These reports contain the basic financial data of balance sheet, P&L and cash flow.
Under the Sarbanes-Oxley Act of 2002 CEOs and CFOs must certify for each annual and quarterly report that
The signing officers are also responsible for establishing and maintaining internal controls and evaluating and reporting on the effectiveness of those controls within 90 days of issuing a report.
The typical IPO process consists of the following steps
The selection of an underwriter is a mutual process. The reputation of the underwriter is at risk and their time and resources have an opportunity cost in that they could be used for more promising deals. If there is more than one investment bank involved, then one is the lead underwriter and the group is referred to as the “syndicate.” The most recognized investment banks include Merrill Lynch, Goldman Sacks and Morgan Stanley.
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-- Jack Horgan, EDACafe.com Contributing Editor.
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