Deck 12: Planning Your Exit

Question 1

Before making an IPO decision, you should ask yourself, "Am I ready to share ownership of this company with the public?"

Answer 1

True

Question 2

One of the benefits of going public is that the company can then issue stock options to management and employees.

Answer 2

True

Question 3

Loss of control is an advantage of going public.

Answer 3

False

Question 4

Fortunately, when going public there are no added fiduciary responsibilities.

Question 5

Going public is a cheap process.

Question 6

Before going public, a company needs to take out a personal liability insurance policy.

Question 7

The first step in discounting cash flow is to forecast the next 5 years of sales.

Question 8

When establishing an alliance, the first step is to identify the objective of the alliance.

Question 9

A selling memorandum normally includes information about the company's history, the market, company's products, operations and strengths.

Question 10

In the "employees" section of a selling memorandum, it should specify whether a union represents them or not.

Question 11

Potential buyers include personal contacts, trade associations, investment and commercial bankers and accountants.

Question 12

When selling an equity share, an entrepreneur identifies the most appropriate assets that will be valued by the buyer.

Question 13

The time and date the company agrees with the investment firm to offer the securities to the public until twenty-five days after the securities become available to the public is known as the ____________.

Question 14

The SEC places restrictions on what a company can do while in _______________.

Question 15

______________ are meetings that give perspective members of the underwriting syndicate to meet the management team and ask questions.

Question 16

When the IPO is completed and finalized, the entrepreneur and the management team must begin meeting the shareholders and _______________.

Question 17

_____________ is more suitable for a company with an established track record.

Question 18

____________ is based on the worth of the business's assets.

Question 19

The final step in calculating discounted cash flow is estimating when the firm will reach _______________ and what characteristics it will have when it does.

Question 20

The ______________ company is a concept that can help you identify the most appropriate assets.

Question 21

For a company that has established a history of operations, the sale is more likely to be for a _______________.

Question 22

A(n)____________agreement is an agreement that requires the seller to only negotiate with the identified potential buyer for a certain period of time, such as 90 or 120 days.

Question 23

A "liquidity event" is:

A) bankruptcy.
B) shareholders selling their stock to the public or another company for cash.
C) obtaining a bank loan.
D) having at least three months' cash on hand.

Question 24

An "exit strategy" is:

A) a liquidity event.
B) being able to retire with sufficient funds.
C) paying a dividend to angels to keep them happy.
D) paying down your bank loan.

Question 25

It is necessary to provide an exit strategy for:

A) angel investors or venture capitalists.
B) state governments.
C) bankers.
D) employees.

Question 26

The most common method for a private equity investor to get a return is:

A) Receiving a regular dividend on earnings from the company.
B) Outright sale to another company.
C) Partial sale to another company.
D) An initial public offering.

Question 27

An ESOP provides an exit strategy for:

A) Angels and Venture Capitalists.
B) Employees.
C) Lenders.
D) Founders.

Question 28

An MBO provides an exit strategy for:

A) Employees.
B) Banks.
C) Managers.
D) Founders.

Question 29

Planning a merger requires calculating values of both the business and all:

A) existing resources.
B) the other business.
C) the management salaries.
D) goodwill.

Question 30

A selling memorandum need not have which of the following items?

A) Historical financial statements
B) Executive Summary
C) Expected sales price of the company
D) Full description of the business

Question 31

A road show is:

A) Pitching the sale of stock to government agencies.
B) Exhibiting at a trade show.
C) A recruiting drive at colleges.
D) A dog-and-pony show.

Question 32

MBO stands for:

A) Major buyout.
B) Multi buyout.
C) Management buyout.
D) Majority buyout.

Question 33

____________is the most widely used method of valuing a business, which provides the investor with the best estimate of the probable return on investment.

A) Dividends.
B) Historical earnings.
C) Discounted cash flow valuation
D) Future earnings.

Question 34

Which of the following is NOT a part of a selling memorandum:

A) Management
B) Marketing and sales
C) Earn-out agreements
D) Employees

Question 35

In a selling memorandum, financial projections should be prepared for the next:

A) 1 Year.
B) 3-5 years.
C) 10-15 years.
D) 20 years.

Question 36

Which of the following is NOT included in the letter of intent?

A) What is being purchased
B) The structure
C) Government's role
D) Due diligence

Question 37

Asking "what are the timing and extent," in the letter of intent, is part of:

A) the structure.
B) due diligence.
C) exclusivity agreement.
D) bust-up fees.

Question 38

Which of the following is NOT a typical condition of a sale?

A) Maintenance of minimum net worth requirements
B) Transfer of material agreements
C) Delivery of financial statements
D) Acceptance of ESOP

Question 39

Before going public, a company needs to take out _________________??_that will protect the officers and directors from being held personally liable if a shareholder suit is brought based on incorrect information in the Registration Statement.

A) workers compensation
B) a personal liability insurance policy
C) an underwriter's policy
D) business insurance

Question 40

Before making an IPO decision, all but which one of the following questions need to be addressed?

A) Can the family business survive through the third generation?
B) Are you ready to share the ownership of your company with the public? 

C) Can you live with the continued scrutiny of investors and market analysts? 

D) Are you prepared to disclose your company's most closely held secrets?

Question 41

Which of the following is a benefit of going public?

A) You solely own the company
B) No one can tell you how to run your business
C) You have greater access to capital
D) You can hire all your closest friends

Question 42

Which of the following is a disadvantage of going public?

A) Management and employee incentives
B) Access to capital
C) Improved financial condition
D) Upfront expenses

Question 43

Which of the following is NOT a benefit of going public?

A) Enhanced corporate reputation
B) Improved opportunities for future financing
C) Sharing success
D) Access to capital

Question 44

Which of the following is NOT a factor to consider when selecting an underwriter?

A) Post-IPO support
B) Distribution
C) Experience
D) His/her personal wealth

Question 45

Which of the following is not a correct matching of exit plan to the description of that plan?

A) Using an ESOP - selling shares of stock to employees at a reduced price.
B) Creating a public offering (IPO) - selling shares of ownership via public equity markets.
C) Using an MBO - managers and/or executives purchase controlling interest from shareholders.
D) Selling equity stake to partner - borrowing low-interest funds from strategic partner.

Question 46

The benefits of selling an equity stake to a strategic partner can include all of the following except:

A) Sharing costs and customer relationships.
B) Reducing the individual companies' exposure to risk.
C) Increasing chances of getting the product to market quicker.
D) All of these benefits can accrue when selling equity stakes to strategic partners.