business-haroun/mba/ch76.org

#+title: Section 13 | Lesson 76 - financing alternatives
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* Links
- [[./../mba-main.org][TOC | Business]]
- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4301162#overview][S14:L76 course video]]

* notes
** Harvesting an investment
- asset can be transferred to investors
- company can be sold and cash distributed to investors
- company goes public and shares are distributed 6 months post IPO lockup

** Planning an exit strategy
- need to explain liquidity targets to investors when you are raising capital
  - make sure you are both thinking the same way
  - have a lawyer prepare the documents

** Buyouts
- "leveraged buyout" LBO
- financed using debt
- must have great cash flows to secure loans

*** firms
- many public companies partner with private equity firms and go private
- goal is to go public again at some point

**** example firms
- KKR
- TPG

*** management buyout (MBO)
- when management buys the company
  - loans
  - investors
  - their own money

- gains
  - independence
  - control

*** Employee Stock Ownership Plan (ESOP)
- employees buy the company
- all employees own it not just management

** Initial Public Offering (IPO)
*** what is an initial public offering
- private company sells shares to the public through a stock exchange
- this allows
  - company to raise capital for growth
  - early investors and employees to convert their holdings to cash

*** shares
**** types of shares
***** primary
- newly issued shares created by the company for the IPO
- when sold to outsider investors the money goes to the company's treasury
- used to fund expansion, pay debt, invest in new projects

***** secondary
- already existing shares held by people "shareholders"
  - it's the shareholders that make money when selling their shares
  - venture capital firms
  - founders or employees that want to cash out

**** in practice
- most IPOS are a mix
  - primary raises growth capital
  - secondary is the payout for whoever bought in early

**** dilution
- when primary shares are made and sold, existing shares are worth less
- company gets money to raise to invest in projects that can increase it's overall value in cluding the diluted shares

*** structure, underwriting and listing requirements
- underwriting spread is fee the investment bank gets (usually up to 7%)

**** listing requirements for NASDAQ
- share price >= $4, at least 1M publicly held shares
- several years of operating history and financials
- must have a Board of Directors (BOD) with independent members
  - oversee management
  - ensure regularatory compliance
  - protect shareholders
  - maintain audient, compensation and nominating committees

** Troubled Ventures and Turnarounds
*** basics
- turnarounds don't work in tech
- very rare exceptions
  - steve jobs at apple
  - IBM
- this is due to 'secular decline'
  - A secular decline is a persistent, structural decrease in growth, productivity, or demand that continues for many years regardless of normal economic ups and downs.

*** corporate raiders
- dont let sentiment cloud your judgement
- it's a zombie.  shoot it and move on.
  - liquidate
  - sell it

*** ways to die
- financial distress :: when cash on hand is insufficient to pay for current liabilities
- load default :: one missed payment and it is over
- acceleration provision ::  when a firm defaults on just one payment then all future payments are due immediately
- cross default provision :: one late payment on one loan causes all loans to go into default
- foreclosure :: the legal process where lenders collect and take stuff from you
- insolvent :: negative book equity

*** reqlities
- 25% of companies go belly up within 2 years of being founded
- more than 50% of companies shut down within 4 years of being founded

*** bankruptcy law
- a legal code that has many chapters that protect you

**** chapter types
***** types
- chapter 7 :: how people / firms liquidate stuff
- chapter 9 :: how cities deal w/ bankruptcy
- chapter 11 :: how firms deal w/ bankruptcy
- chapter 12 :: how farms deal w/ bankruptcy

***** general rules
- chapters 1, 3, 5 :: general bankruptcy rules
- chapter 15 :: trustees that help banks
- chapter 13 :: restructuring personal debt

***** most important
- chapter 7 - liquidating
- chapter 11 - restructuring

**** chapter 7 liquidation
- after a person / company files for bankruptcy then a court supervises the liquidation process

**** capter 11 bankruptcy filing
- temporarily protects a distressed firm so they can restructure or pay off debt
***** types of restructuring
- operations restructuring :: incraese revenue or cut expenses
- asset restructuring  :: selling assets to improve ratios
  - day sales outstanding
  - inventory conversion period

***** this can save a company
- 65% of companies reorganize
- 28% liquidate
- 7% merge with another firm

***** steps
1. file for chapter 11 with one of 300 bankruptcy courts
2. a bankruptcy judge accepts or doesn't accept petition
3. if no fraud a company has 120 days to make a plan
4. 60 days is then given to creditors to accept the plan
5. investors then vote
finished the course 2025-12-14 13:46:32 +02:00			`#+title: Section 13 \| Lesson 76 - financing alternatives`
			`#+HTML_HEAD: <link rel="stylesheet" type="text/css" href="../_share/media/css/org-media-sass/categories/business.css" />`
			`#+OPTIONS: H:6`

			`* Links`
			`- [[./../mba-main.org][TOC \| Business]]`
			`- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4301162#overview][S14:L76 course video]]`

			`* notes`
			`** Harvesting an investment`
			`- asset can be transferred to investors`
			`- company can be sold and cash distributed to investors`
			`- company goes public and shares are distributed 6 months post IPO lockup`

			`** Planning an exit strategy`
			`- need to explain liquidity targets to investors when you are raising capital`
			`- make sure you are both thinking the same way`
			`- have a lawyer prepare the documents`

			`** Buyouts`
			`- "leveraged buyout" LBO`
			`- financed using debt`
			`- must have great cash flows to secure loans`

			`*** firms`
			`- many public companies partner with private equity firms and go private`
			`- goal is to go public again at some point`

			`**** example firms`
			`- KKR`
			`- TPG`

			`*** management buyout (MBO)`
			`- when management buys the company`
			`- loans`
			`- investors`
			`- their own money`

			`- gains`
			`- independence`
			`- control`

			`*** Employee Stock Ownership Plan (ESOP)`
			`- employees buy the company`
			`- all employees own it not just management`

			`** Initial Public Offering (IPO)`
			`*** what is an initial public offering`
			`- private company sells shares to the public through a stock exchange`
			`- this allows`
			`- company to raise capital for growth`
			`- early investors and employees to convert their holdings to cash`

			`*** shares`
			`**** types of shares`
			`***** primary`
			`- newly issued shares created by the company for the IPO`
			`- when sold to outsider investors the money goes to the company's treasury`
			`- used to fund expansion, pay debt, invest in new projects`

			`***** secondary`
			`- already existing shares held by people "shareholders"`
			`- it's the shareholders that make money when selling their shares`
			`- venture capital firms`
			`- founders or employees that want to cash out`

			`**** in practice`
			`- most IPOS are a mix`
			`- primary raises growth capital`
			`- secondary is the payout for whoever bought in early`

			`**** dilution`
			`- when primary shares are made and sold, existing shares are worth less`
			`- company gets money to raise to invest in projects that can increase it's overall value in cluding the diluted shares`

			`*** structure, underwriting and listing requirements`
			`- underwriting spread is fee the investment bank gets (usually up to 7%)`

			`**** listing requirements for NASDAQ`
			`- share price >= $4, at least 1M publicly held shares`
			`- several years of operating history and financials`
			`- must have a Board of Directors (BOD) with independent members`
			`- oversee management`
			`- ensure regularatory compliance`
			`- protect shareholders`
			`- maintain audient, compensation and nominating committees`

			`** Troubled Ventures and Turnarounds`
			`*** basics`
			`- turnarounds don't work in tech`
			`- very rare exceptions`
			`- steve jobs at apple`
			`- IBM`
			`- this is due to 'secular decline'`
			`- A secular decline is a persistent, structural decrease in growth, productivity, or demand that continues for many years regardless of normal economic ups and downs.`

			`*** corporate raiders`
			`- dont let sentiment cloud your judgement`
			`- it's a zombie. shoot it and move on.`
			`- liquidate`
			`- sell it`

			`*** ways to die`
			`- financial distress :: when cash on hand is insufficient to pay for current liabilities`
			`- load default :: one missed payment and it is over`
			`- acceleration provision :: when a firm defaults on just one payment then all future payments are due immediately`
			`- cross default provision :: one late payment on one loan causes all loans to go into default`
			`- foreclosure :: the legal process where lenders collect and take stuff from you`
			`- insolvent :: negative book equity`

			`*** reqlities`
			`- 25% of companies go belly up within 2 years of being founded`
			`- more than 50% of companies shut down within 4 years of being founded`

			`*** bankruptcy law`
			`- a legal code that has many chapters that protect you`

			`**** chapter types`
			`***** types`
			`- chapter 7 :: how people / firms liquidate stuff`
			`- chapter 9 :: how cities deal w/ bankruptcy`
			`- chapter 11 :: how firms deal w/ bankruptcy`
			`- chapter 12 :: how farms deal w/ bankruptcy`

			`***** general rules`
			`- chapters 1, 3, 5 :: general bankruptcy rules`
			`- chapter 15 :: trustees that help banks`
			`- chapter 13 :: restructuring personal debt`

			`***** most important`
			`- chapter 7 - liquidating`
			`- chapter 11 - restructuring`

			`**** chapter 7 liquidation`
			`- after a person / company files for bankruptcy then a court supervises the liquidation process`

			`**** capter 11 bankruptcy filing`
			`- temporarily protects a distressed firm so they can restructure or pay off debt`
			`***** types of restructuring`
			`- operations restructuring :: incraese revenue or cut expenses`
			`- asset restructuring :: selling assets to improve ratios`
			`- day sales outstanding`
			`- inventory conversion period`

			`***** this can save a company`
			`- 65% of companies reorganize`
			`- 28% liquidate`
			`- 7% merge with another firm`

			`***** steps`
			`1. file for chapter 11 with one of 300 bankruptcy courts`
			`2. a bankruptcy judge accepts or doesn't accept petition`
			`3. if no fraud a company has 120 days to make a plan`
			`4. 60 days is then given to creditors to accept the plan`
			`5. investors then vote`