Rosetta Stone: Pricing the 2009 Ipo Essay
In the following case study we intend to analyse Rosetta Stone’s 2009 IPO. The main purpose is to come up with a reasonable estimate of the price at which the firm’s shares should be initially offered. This estimation is preceded by a general consideration of the advantages and disadvantages that going public might have for Rosetta Stone. Following this qualitative analysis, we then estimated the price at which Rosetta Stone’s shares should be offered in the 2009 IPO. In order to do so, we first determined the current market price for shares of the firm by employing a market multiples as well as discounted cash flow valuation. On the basis of these values, we estimated the IPO price and then gave a …show more content…
Finally, since Tom Adams (CEO of Rosetta Stone) is concerned that his company may be an attractive takeover target, the increased capital base due to the IPO might help Rosetta Stone prevent a hostile takeover.
2. Disadvantages of going public
Generally speaking, an IPO is a relatively lengthy process; a typical U.S. IPO lasts for more than 90 days. Together with all the costs associated with an IPO (costs of auditing, accounting, legal service as well as underwriting commissions), this makes going public a relatively expensive form of raising capital. In addition to that, a general risk is also that once the firm is publicly traded, management might focus more on increasing short-term earnings and maximizing stock price rather than concentrating on long-term investment decisions that could potentially benefit the company’s sustainable growth.
Also, one of the major consequences of an IPO are the high regulatory requirements for publicly traded firms, particularly regarding the disclosure of additional information. Such information may provide Rosetta Stone’s competitors with valuable insights and let them know more about the firm than Rosetta’s management would like them to know.