Investment Bank Case Analysis
Imagine you are a financial analyst at a major investment bank and will soon be working on a project involving a company going public. To help you prepare for this work and provide coaching for your continued career growth, your supervisor has asked you to choose a company that recently went public and analyze whether the company made a sound selection for its initial public offering (IPO), as well as other markets it could have considered. (Your instructor should approve your choice of company early in the course.) Specifically, your supervisor has requested that you prepare a market analysis report laying out the different markets (including non-U.S. markets); factors that might affect market performance; relevant rules, regulations, and governing bodies; and the risks and benefits associated with different financial instruments in different markets. Based on your analysis, you will assess whether the company you selected made a sound choice on which market to enter and why. You will also discuss the role different financial intermediaries played in helping the selected company achieve its goals and what that might suggest for the upcoming project. Specifically, the following critical elements must be addressed:
I. Market Overview. This section should provide an overview of the main organized exchanges, both inside and outside the United States, from which the company you are reviewing could have selected. Note that you do not need to list every exchange, just major exchanges with large market capitalization to give a sense of the diversity of markets available. In particular, you should briefly:
A. Identify the main features, similarities, and differences in the principal global organized exchanges. For example, what instruments or securities are traded in the different markets? Are some markets more focused on certain industries or commodities? Are some markets more prestigious or harder to enter than others?
B. Assess recent performance for the markets you identified in broad terms, focusing on factors that might affect IPO-listing decisions. Support your response with specific indicators and examples. For example, which markets are performing well? Which are highly volatile? What current events might impact the markets?
II. Macroeconomic Environment. This section should focus on external factors that can cause markets to move, and how and why those factors influence performance. You will use this information later in the report to inform your conclusions about the company’s market selection. Specifically, you should:
A. Assess how different economic environments, such as boom and bust cycles, affect markets both individually and collectively. In other words, consider how economic growth or scarcity affects individual markets and how the economic environment for one market affects others. Support your answer with examples from different markets and economic periods.
B. Explain how social and political climates can affect market performance, risks, and returns. Use real-world examples from different markets to support your answer.
C. Analyze how interest rates and inflation affect market performance, using real-world examples from different economic periods to support your answer. For example, how do interest rates affect business borrowing, personal investment, and lending?
D. Compare and contrast how different types of financial instruments, such as stocks, bonds, mutual funds, and commodities, respond to different macroeconomic environments, analyzing how that might affect a company’s IPO success. For example, are investors more likely to purchase shares of a newly listed company in certain contexts more than others? Will the cost of key commodities or services be higher in certain contexts?
III. Oversight and Governance. Use this section to explain how different markets are regulated, by which agencies, and how that might impact decisions on which market(s) to list in. You must address:
A. U.S. Exchanges. Select a major U.S. exchange(s) that the company you are reviewing could have considered in making its IPO listing decision. If the company is listed on a specific U.S. exchange, use that market. Be sure to answer:
1. What rules and regulations do companies wishing to list on this U.S. exchange need to follow and how might that affect listing decisions? Your answer should focus on basic entry and operation standards, including requirements for non-U.S. companies to trade on U.S. exchanges, citing relevant sources.
2. How are U.S. market regulations enforced and by which agencies? How might the costs of compliance and consequences of noncompliance have affected the company’s listing decision? Justify your response.
B. International Exchanges. Select a major non-U.S. exchange(s) that the company you selected could have considered in making its IPO listing decision. If the company is listed on a specific non-U.S. exchange, use that market. Specifically:
1. How can you determine the rules, regulations, and oversight bodies for this non-U.S. market? In other words, where would you look to find this information and how would you know to look there? Support your response with concrete examples.
2. What rules and regulations do companies wishing to list on this non-U.S. exchange need to follow and how is compliance enforced? How might those factors have affected the company’s decision? Your answer should focus on how basic market requirements and compliance mechanisms are (or are not) different than those for U.S. exchanges, citing relevant sources.
C. Multiple Markets. Analyze whether the selected company should or should not have considered listing its initial public offering (IPO) in more than one market. Justify your response. For example, can a company legally list in more than one market? If so, under what conditions? What are the risks and returns for attracting individual and corporate investors?
D. Interest. Analyze how interest rate policies and announcements affect returns and decisions about listing in the two markets you selected. Provide specific examples to illustrate your answer. For example, how are interest rates determined in U.S. versus non-U.S. markets? How do governments use interest rate decisions to try to influence the markets under different conditions?
IV. Risks and Returns. Use this section to analyze the risks and returns of different investment instruments in the U.S. and non-U.S. market you selected above. You may find it helpful to use online brokerage aids or other tools in conducting this analysis. Specifically, address the following: A. Investment Instruments. Review stock, bond, mutual fund, and commodities performance in the two markets. Be sure to:
1. Analyze investment returns in each of the two markets, including dividend yields, capital gains, prices relative to intrinsic values, and foreign exchange considerations associated with each of the instruments. Use relevant indicators and visual displays to help present your findings.
2. Explain what your analysis of returns suggests about each market’s performance and how that might affect decisions on where to list. Justify your response.
3. Compare and contrast how the different types of instruments move in the two markets over time, explaining the significance of this information for decisions on where to list. Provide specific examples to support your answer. For example, have certain types of instruments historically performed better in one market over another? Have certain types of instruments yielded higher returns more quickly?
4. Assess the risks versus returns associated with the different types of investment instruments in the two markets. How might these tradeoffs affect listing decisions? Support your response with specific examples. B. Interest and Inflation. Analyze how interest rates and inflation affect different investment instruments and investor decisions. Give specific examples from the two markets selected to support your answer. For example, how do inflation and interest rates affect stock, bond, and mutual fund returns in each market? How does that, in turn, affect business and individual short- and long-term investment planning? C. Taxation. Would tax policies in the two markets make one a better option for IPO listing than the other? Why or why not? Give specific examples.
V. Conclusions. Use this section to draw conclusions based on your analysis. Specifically:
A. Did the company you selected make a sound choice on which market to list in based on the macroeconomic climate, regulatory environment, and risks and returns? Might the other market you analyzed have yielded better returns? Justify your response.
B. What role did different financial institutions play in helping the selected company achieve its financial goals, and what might that suggest for the upcoming project? For example, what criteria should a company use to select and assess the reliability of potential intermediaries?
