This case provides comprehensive coverage of a firm's decision to undertake an IPO and the process of going public. The case follows the sequence of events from the company's incorporation in 1999 through the completion of an IPO in September 2005. In addition to raising capital, the TRX IPO case also includes consideration of another motivation for going public. At the time of its incorporation in November 1999, TRX attempted to go public but in the ensuing dot-com collapse, the IPO was never completed. In response to the failed IPO, TRX president and CEO, Trip Davis, turned to strategic investors to raise $20 million in a note convertible into equity at $11 per share. Although Davis had hoped the strategic investors would provide guidance and business opportunities for TRX, they never materialized. By 2004, he had come to believe that the largest strategic investor, Sabre, Inc., was not working in TRX's best interest. Thus, the IPO is motivated by a twofold purpose: to raise money and to provide for a strategic reorganization of the firm's ownership structure.
Excerpt
UVA-F-1568
Rev. Aug. 20, 2012
TRX, INC.: INITIAL PUBLIC OFFERING
September 26, 2005, was not a normal Monday afternoon for Trip Davis, CEO of TRX, Inc. Davis sat in his Atlanta office waiting to return a call from his investment bankers at Credit Suisse First Boston (CSFB). Just back from a marathon two-and-half-week road show across the country and Europe to market the initial public offering (IPO) of his company, Davis had been in touch with his bankers on a daily basis. Although Davis and his team had prepared extensively to help investors understand TRX's business model and promising growth potential, many investors still seemed reluctant to purchase shares. The first few days, the bankers told him not to worry—that the book never came together until the end of the road show. After that, indications of interest began to come in, but at prices below the original file range of $ 11 to $ 13 per share. The last call from his bankers earlier that day brought news that the book remained “very thin” even at a lowered price of $ 9 per share.
This was Davis's second go-round trying to take TRX public. His first attempt in 2000 was cancelled due to unfavorable market conditions related to the dot-com collapse. Since then, TRX had experienced fast growth under Davis's management and had become a major data-transaction and -integration company for the travel industry. Davis knew the company needed to raise capital to support future growth and, more importantly, to recapitalize TRX's current ownership structure. When TRX's first IPO failed, the firm had turned to strategic investors to raise capital, but these investors now wished to exit. While the IPO could provide them liquidity, Davis knew the investors would be loath to agree to an IPO price of less than $ 11 per share, the price they had paid for TRX's shares. As the four o'clock hour approached, the bankers waited anxiously in New York for his decision.
Company History
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