Funding Indian Companies with PIPEs

Written by William Cate


Continued from page 1

There are two basic types of PIPEs. A Traditional Pipe isrepparttar sale of unregistered shares, usually common stock, preferred shares or convertible securities at a discount torepparttar 111693 prevailing market price ofrepparttar 111694 stock. A Structured PIPE isrepparttar 111695 sale of unregistered stock at an adjustable share price;repparttar 111696 primary risk in doing a Structured PIPE is that it can create a toxic convertible. The PIPE investor can use his PIPE shares to sell shortrepparttar 111697 company’s stock. Asrepparttar 111698 Company’s share price falls,repparttar 111699 investor hasrepparttar 111700 right to more company shares. These shares are used to sell short more shares ofrepparttar 111701 company’s stock. Asrepparttar 111702 short selling process continues,repparttar 111703 company’s stock goes into a death spiral.

Startup companies, R&D projects and debt consolidation aren’t easily sold to an investor as a PIPE financing. Growth capital that allowsrepparttar 111704 company to increase sales and acquisition financing arerepparttar 111705 wisest proposed use of funds when your company wants a PIPE underwriting.

Private Western Investors are unlikely to be active in management buyouts in India because of possible regulatory hitches. India has a huge market for Mergers and Acquisitions. There are numerous assets in many companies that should be accumulated by farsighted Indian companies. In India, there’s massive potential for consolidation and corporate growth. It’s an opportunity that would interest many Western money managers.

American PIPEs are a unique investment vehicle. They provide public companies with a quick channel to capital. The process to completerepparttar 111706 deal is much faster than a traditional secondary offering. It isn’t that difficult or expensive to become an American public company.

Any public company in India can easily determine Indian Venture Capital and Mutual Fund investment interest in doing PIPE underwriting for their company. Ifrepparttar 111707 public company wants to access western capital,repparttar 111708 public company’s shares should trade inrepparttar 111709 United States. There are two cost-effective strategies that that will allow their shares to trade inrepparttar 111710 States. 1. The Indian Company can have their shares trade as ADRs (American Depository Receipts). The primary U.S. Bank creating ADRs isrepparttar 111711 Bank of New York. 2. The Indian Company can list their shares on any U.S. Stock Market.

A private Indian company should determine bothrepparttar 111712 costs of going public in India andrepparttar 111713 availability of Indian PIPE underwriting for their company, if they take their company public. The private company’s alternative would be to take their company public inrepparttar 111714 U.S.

Inrepparttar 111715 United States,repparttar 111716 more crediblerepparttar 111717 Stock Market,repparttar 111718 greaterrepparttar 111719 costs of listing your shares on it. There are far more PIPE investors for a New York Stock Exchange Company than one that trades onrepparttar 111720 Over-the-Counter Market. PIPE investors funding New York Stock Exchange Companies are willing to risk far more money than those working with Over-the-Counter public companies. Sorepparttar 111721 more money your company wants to raise in a PIPE financing,repparttar 111722 greaterrepparttar 111723 costs of listing your shares inrepparttar 111724 United States.

What does it cost to list your company in America? A rough estimate forrepparttar 111725 New York Stock Exchange would be five million U.S. Dollars. For Nasdaq,repparttar 111726 American Stock Exchange or a Regional Stock Exchange, a rough estimate would be two million U.S. Dollars. Forrepparttar 111727 Over-the-Counter Market,repparttar 111728 costs should be less than one hundred thousand U.S. Dollars.

The listing problem related to costs isrepparttar 111729 time it takes to list your company inrepparttar 111730 United States. A New York Stock Exchange listing can take several years. Listing on Nasdaq,repparttar 111731 American Stock Exchange, or a Regional Stock Exchange would take about eighteen months. To list your shares onrepparttar 111732 Over-the-Counter Market should take less than six months.

Business relationships are built over time. Unless your company is amongrepparttar 111733 economic powerhouses of India, you are better served starting small and building relationships with Western investors. Develop a business plan that will grow your company into a regional powerhouse and use PIPEs to add to your balance sheet assets.

About William Cate: In 1981, he founded and has since beenrepparttar 111734 Managing Director of Beowulf Investments: [http://home.earthlink.net/~beowulfinvestments/ ]. He isrepparttar 111735 author of Venture Capital Profits, which proposesrepparttar 111736 use of PIPEs to build companies through a process of Mergers and Acquisitions.

Author’s Note: This article appears in early 2004 in an Indian newspaper.

He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]


Go Public Young CFO, Go Public

Written by William Cate


Continued from page 1

Withrepparttar public company’s $500,000 in pretax profit, you would be in a position to buy a private company grossing two million dollars. Its pretax profit would be $500,000. Inrepparttar 111692 third year, your public company could buy a private company grossing four million dollars and so on. This simple model of stock leveraged progression doesn’t factor intorepparttar 111693 equation taxes and integration issues. Its purpose is to show that using publicly traded shares, a company can leverage its growth by using those shares as money. Ifrepparttar 111694 public company trades inrepparttar 111695 United States,repparttar 111696 shares are valued in U.S. Dollars. In many parts ofrepparttar 111697 world, US Dollars because they are a free trading currency are preferred overrepparttar 111698 local currency.

If inrepparttar 111699 first year of our example, your public company combined your $250,000 pretax profit with a million-dollar Private Placement, your first acquisition would be for five million dollars. Inrepparttar 111700 second year, you could acquire a ten-million-dollar cash-producing asset. Inrepparttar 111701 third year, you would acquire a twenty-million-dollar asset. Within five years, your annual revenues would exceed one hundred million dollars a year. It's all a matter of leverage and a mathematical reinvestment progression. You could work a lifetime and not convert a million-dollar private company into a hundred million-dollar enterprise. Going public allows you to do it within five to seven years. I run a merchant bank willing to dorepparttar 111702 million-dollar Private Placement to jumpstart this leveraged investment progression. However, you must adoptrepparttar 111703 cash and shares acquisition business strategy to qualify.

Becoming a Multinational Corporation

Public company status is a major step toward becoming a multinational corporation. What'srepparttar 111704 difference between being a national company and a multinational corporation? It'srepparttar 111705 difference between receiving Government funding or, instead, supportingrepparttar 111706 local Government with corporate income taxes.

A company doing business inrepparttar 111707 United Kingdom, for example, must pay British taxes on its profits. The same company doing business inrepparttar 111708 Global Village will pay far lower taxes because it can selectrepparttar 111709 jurisdiction in which it pays its taxes. Withinrepparttar 111710 European Union, companies pay anywhere from 20% income tax to over 50% income tax. A multinational corporation can chooserepparttar 111711 20% tax jurisdiction. The British company, operating from Great Britain, has no such choice.

Government Funding For Your Public Company

Governments fund multinational corporations that create local jobs. A multinational corporation with markets inrepparttar 111712 West and production inrepparttar 111713 East will find most Asian Governments anxious to supply at least 50% ofrepparttar 111714 plant development costs and offer other inducements to creating local jobs. Governments in Africa,repparttar 111715 Middle East and Latin America have similar incentive programs. Ifrepparttar 111716 multinational corporation chooses its production areas wisely, it can avoid import taxes into eitherrepparttar 111717 EU or NAFTA.

Profiting From Being Public

Eventually,repparttar 111718 owners of your public company will want to sell their company. They'll sell their public company for at least four timesrepparttar 111719 balance sheet value ofrepparttar 111720 public company. The same leverage of share price over balance sheet that attracted your Private Placement investors will now work in favor of your public company insiders.

From raising money to sellingrepparttar 111721 company,repparttar 111722 benefits of being a public company far outweigh any advantages of remaining a private company. The key to success is usingrepparttar 111723 advantages of being public while avoidingrepparttar 111724 mistakes made by most CFOs who take their company public. If you fail to avoidrepparttar 111725 common public company mistakes, being public will be a nightmare. You'll have little choice but to take your public company private to avoid bankruptcy.

The Only Strategy For Success

Going public and becoming a multinational corporation isrepparttar 111726 only workable 21st Century business strategy for success. If you need advice and help on makingrepparttar 111727 public market your key to business success, email me at: Beowulfinvestments@Earthlink.net

Author’s note: I expect this article to be translated into Chinese and appear in a PRC financial publication inrepparttar 111728 Summer of 2005.

He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]


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