Rosetta Stone Case Study
Case #3: Rosetta Stone
1. By going public Rosetta Stone would be able to obtain the capital required to expand the business and enter new markets. Another advantage of going public is the ability for Rosetta Stone to increase its brand’s image, awareness, and reputation. An IPO could be a good move because of the increased globalization occurring that has led to more and more people learning needing or wanting to learn different languages. Going public as the economy is just coming out of its recession could prove to be advantageous for Rosetta Stone. The case gave the example of Changyou.com going public at six and a half times its EBITDA. It also mentioned that the CEO of Rosetta Stone had concerns about being taken over if they stayed private and going public would be an advantage in that respect by making it possible for Rosetta Stone to implement anti-takeover measures.
A disadvantage of going public is the amount of time, effort, and money that it requires. The case showed that it would take over three months (90+ days) to go from a private company to public. Bringing in potential underwriters and finding potential investors is time consuming for the firm going public. All of the additional people brought in to take the company public cost money along with the other numerous costs associated with an IPO. Another disadvantage of an IPO is the increased amount of regulations that a public firm must comply with. Public firms are more heavily monitored by the SEC and the costs of complying with regulatory requirements are a disadvantage. The biggest disadvantage of going public is probably the increased scrutiny and pressure to increase earnings that the company will face. Shareholders will look to earnings to show improvement and criticize management’s decisions.
2. An IPO is not the only option available to Rosetta Stone, and the private market has some other options available that could be used to improve the company’s position. Rosetta Stone could
1. By going public Rosetta Stone would be able to obtain the capital required to expand the business and enter new markets. Another advantage of going public is the ability for Rosetta Stone to increase its brand’s image, awareness, and reputation. An IPO could be a good move because of the increased globalization occurring that has led to more and more people learning needing or wanting to learn different languages. Going public as the economy is just coming out of its recession could prove to be advantageous for Rosetta Stone. The case gave the example of Changyou.com going public at six and a half times its EBITDA. It also mentioned that the CEO of Rosetta Stone had concerns about being taken over if they stayed private and going public would be an advantage in that respect by making it possible for Rosetta Stone to implement anti-takeover measures.
A disadvantage of going public is the amount of time, effort, and money that it requires. The case showed that it would take over three months (90+ days) to go from a private company to public. Bringing in potential underwriters and finding potential investors is time consuming for the firm going public. All of the additional people brought in to take the company public cost money along with the other numerous costs associated with an IPO. Another disadvantage of an IPO is the increased amount of regulations that a public firm must comply with. Public firms are more heavily monitored by the SEC and the costs of complying with regulatory requirements are a disadvantage. The biggest disadvantage of going public is probably the increased scrutiny and pressure to increase earnings that the company will face. Shareholders will look to earnings to show improvement and criticize management’s decisions.
2. An IPO is not the only option available to Rosetta Stone, and the private market has some other options available that could be used to improve the company’s position. Rosetta Stone could