Lauderdale Clothing manufactures shirts and pants with the Lauderdale logo. It is attempting to engage in an initial public offering (IPO). Three years ago, the firm planned an IPO, but because market conditions and earnings for the year came in below expectations, the full value of the firm would not have been realized. Therefore, the plan was scrapped.
In the last three years, sales have increased by 20 percent and are currently over $250 million. Furthermore, profits have increased to more than $60 million, up from last year's profits of $32 million. The investment banker that will issue the stock for Lauderdale Clothing believes that Lauderdale is in much better financial shape today and better prepared to undertake an IPO of stock. The company has developed stronger management and has aggressively pursued international business.
Questions
1. Explain why the IPO is expected to be more successful now than it would have been three years ago.
2. Explain what types of debt and equity financing Lauderdale Clothing could undertake now and in the future.
3. What is the role of the investment banker in this IPO?