Getting Creative with Capital Budgeting
From the past few articles, it may seem like capital budgeting has a pre-determined procedure. All the possible scenarios that can occur have been thought of and appropriate solutions for all of them have already been developed. While this makes “capital budgeting” a good subject, it also removes the creativity from it. There is a […]
Types of Costs to be Allocated in Job Order Costing
Companies incur a variety of costs in their day to day operation. These costs are very different from one another and need to be treated differently by the accountants to give a fair picture of the organization. Here is a list of the different types of costs that are usually incurred by an organization as […]
Start-Up Valuation: Advanced Concepts
In the previous articles, we have already studied the basics of start-up valuation. We are also aware of the basic concepts such as pre-money valuation and post-money valuation which commonly affect the funding received by startups. However, the cases mentioned until now were very simple. These cases are only presented for the student to gain […]
Point of Sale (PoS) System – Meaning, Importance and Benefits
With the advent of technology, more and more people have started accepting digital payments. This means that corporations have to provide their customers the option to make payments using a wide variety of payment methods. Some of these payment methods are electronic whereas others are not. Commercial banks have identified the possibility of providing good […]
What are Capitalization Tables?
The capitalization table is a very important record for any startup company. These tables provide a clear and unambiguous report of who owns and controls what percentage of the startup’s shares. It is considered to be the final and irrefutable record that provides details about the ownership of the company. Since decisions involving financing, sale, […]
It is common knowledge that investment bankers help a company when they want to list their shares on the stock exchange. This process is called listing, and there are hundreds of companies that undertake this process every year. However, the opposite of this process also happens. This means that companies that are already publicly listed also tend to go private. This process is called delisting and happens much less frequently. However, just like delisting, this process also requires the services of an investment banker.
In this article, we will have a closer look at what delisting is and how investment bankers help in the process.
Delisting means that the shares of the company will no longer be traded on the stock exchange. This could happen either voluntarily or involuntarily. Stock exchanges have certain criteria that need to be met in order for the companies to remain listed. For instance, they have to pay an annual listing fee, must maintain a certain amount of turnover, and must comply with the rules and regulations of the exchange. If they fail to do so, they can be delisted forcefully by the exchange. Such a delisting is called involuntary delisting.
Compared to this, many companies decide to get delisted by their own wish. This is because delisting allows them to keep their records private and provides some other benefits as well. This is called voluntary delisting. In the balance of this article, we will provide details about the voluntary delisting process as well as the role of investment bankers in the process.
Companies that want to delist their shares have to enlist the services of an investment bank. This is because, just like listing, delisting is a complicated legal procedure. There are many regulations that need to be complied with. As such, there is a need for the services of an investment banker who is well versed with the processes that have been put into place.
The delisting process happens via a procedure called reverse book building. In the previous article, we have already studied how investment bankers use the book-building process in order to list the shares. However, in this article, we will learn about how the process works in reverse.
During the reverse book-building process, the positions of buyer and seller are interchanged. This means that the company is the buyer for their own shares instead of being the seller. On the other hand, the investors who earlier bought the shares will now be the sellers. The reverse book building process is done to allow for efficient price discovery during the delisting process.
Example: If a company wants to buy 300 shares, it receives 4 bids of 100 shares each for $10, $12, $14, and $16. Here if the company pays $14, then they can purchase 300 shares. Hence, all shareholders who bid below $14 will have their shares acquired at $14 per share. Hence, $14 is the cut-off price. The process is exactly like book building, but it works in reverse.
The bottom line is that delisting is also an important opportunity for investment banks. This is because it is used by many companies to consolidate control back into the promoter’s hands.
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