According to the empirical IPO research from Brau and Fawcett (2006), they document that the four motivations for IPO and one of them states that the IPOs could serve as strategic moves. Chemmanur and Fulghieri(1999, cited in Brau et al., 2006) said that going-public decision can broaden the ownership base of the firm. Moreover, Jones et al.(1999) argued that governments divested state-owned enterprises (SOEs) and privatized them via public share offerings. Therefore, the IPO of RMG is one of kit-tool to finish its privatization. The whole reform of RMG is based on the two government reviews by Richard Hooper (National Audit Office, 2014)who reviews the RMG urgently need to reform to compete with its postal rivals. Especially the long-term decline in letters business and associated threat for its universal postal service which the company was lack of modernisation and efficiency. And the government reviews recommended that RMG’s IPO is one of step to develop the company sustainably. Some studies like Megginson and Netter(2001) who documented significant post-privatization increases in efficiency , profitability and financials strength. The primary motivation for RMG going public is divested the RMG’s ownership from HM Government, and accessing to private capital is for economic benefits from the capital market.
The report from Brau (2006) document that the external equity can minimize the cost of capital which it is an important factor firms conduct a public offering . His research( Myers, 1984, citied in Brau et al., 2006) quoted an argument about a pecking order of financing, which the going-public is for assessing external equity. The announcement from Department for business innovation & skills (I...
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...Choe et al.(1993) also assert that firms are accessing external capital for further growth when firms reaching to a certain stage in business cycle. And companies with larger sizes and higher valuation are more likely to go public(Pagano et al., 1998).
According to the Hooper’s review, the government needs the Group to go public and access private capital to finish its modernized programmes which the company was at the period of transformation. And Royal mail was successfully going public which as a profitable business(National Audit Office, 2014). Meanwhile, the Group has a massive market shares and huge employment etc..
Additionally, when we see the movements of FTSE100 index from 15th Oct, 2012 to 15th Oct, 2013 that the main market generally was in a boom period which the RMG’s IPO increased its market value with favourable market condition.
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