Finc 667 Goldman Sachs Ipo

FINC 667 Goldman Sachs IPO

Background

The initial public offering process (IPO) provides the basis for a privately-owned company to use the capital markets through the issuance of securities to public investors.

“Going public” involves a fundamental decision for a company. This decision has broad implications for the ownership, control, management, legal and funding structure of the company. As an example of the IPO process the casebook example is “The Goldman Sachs IPO (A)”. In this situation the company facing the critical decision on going public is Goldman Sachs, the premier investment bank. This case enables the review of the key IPO process with intense coverage of the control and management questions for a major investment bank. The case highlights the key issues of going public while providing an excellent understanding of the role and operations of an investment bank.

Assignment

Respond to the following questions covering issues in the IPO process and aspects of the investment banking and securities business. This case will be a key subject for a Group and individual reports..

1. Why Go Public? Review the presentation of Goldman Sachs annual financial performance (Exhibit 1) and position in the securities industry (Exhibit 2). Consider information in the case on the capital and debt position of the company. Evaluate the financial strength and business of the company in terms of possible motivations for an IPO. For Goldman Sachs did an IPO represent a response to challenges or opportunities?
2. The IPO Debate. Prior to 1998 there were vigorous internal debates at Goldman Sachs about the advantages and disadvantages of going public. Summarize the principal issues and arguments. How did the arguments reflect the differences in the need for additional capital in the trading and investment banking businesses of the company.
3. Ownership Structure. Consider Goldman Sachs ownership structure in 1997 (Figure A). Comment on the classes of ownership and the differences in their interests in the profitability of the company and in their degree of control. Assuming an IPO which creates a significant amount of additional public ownership how would these ownership classes be impacted? What would be the implications of public ownership?
4. IPO Considerations in 1998. Consider the “merger mania” in the securities industry and the problems confronting Goldman Sachs because of these developments. Compared to other companies evaluate Goldman Sachs financial performance and capital position (Exhibit 6). Did an IPO appear to be necessary?
5. IPO Debate and Decision in 1998. Review the conflicting arguments of partner groups about the proposed IPO. In your view, which side had the best case and which arguments were the most impressive? As a partner what would your position have been? Considering the valuations of other firms (Exhibit 6) what valuation would you have expected for Goldman Sachs. Explain your reasoning.