A case study on the benefits gained by Ionics Inc. from Investment and Capital Corporation of the Philippines (ICCP) for the years 1995-2003

Date of Publication

2006

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Management of Financial Institutions

Subject Categories

Finance and Financial Management

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management

Thesis Adviser

Lawrence T. Co

Defense Panel Chair

Rolando D. Esguerra

Defense Panel Member

Gerry Valenciano
Norberto M. Coronel, III

Abstract/Summary

1.1. Objectives This study aims to determine the benefits gained by Ionics, Inc. (Ionics) form its venture capital partnership with Investment and Capital Corporation of the Philippines (ICCP). These benefits will be categorized into three, namely, Professionalization, Market Performance and Operational Performance. Also, this study will verify what properties of a venture capital, according to existing literature, are consistent with the particular venture capitalist in this study. Other truths from venture capital funding determined by this study will also be verified against foreign literature. Furthermore, this study will resolve on whether or not venture capital backing is a better financing alternative compared to traditional financial intermediaries. Conclusion on what financing method is better will be in accordance with the benefits a firm gets when it opts to avail of a certain funding source against the other.

1.2. Methodology Using the case study methodology and descriptive method using interviews, the group will gather primary from Ionics and ICCP. Existing public information, such as stock prices and financial statements, for the period covered and for the whole Information Technology sector, as defined by the Philippine Stock Exchange, will also be gathered by the group. Data analysis will be done in three parts, Professionalization, Market Performance and Operational Performance. 4 Professionalization will be determined based on the decisions and changes made by ICCP into Ionics such as those mentioned in, but not limited to, Hellmann and Puri, (2002). Market Performance will be evaluated in two ways, Valuation and Returns. Valuation will be determined by applying Tobin’s Q on the stock prices of Ionics. A Tobin’s Q greater than one means that the stock price is overvalued, while a Tobin’s Q equal to one means fair valuation and a Tobin’s Q less than one means that the stock price is undervalued. Another valuation measure will make use of the Price-Earnings Multiple at the Offer Price. The Price-Earnings Multiple (P-E ratio) at the Offer Price of Ionics will be compared with the P-E ratios at the Offer Price of IPOs done in 1994 for a comparable view of their appraisals. Returns will be measured in two ways, Daily Returns, as defined by Calderon, (2000), and Yearly Returns, as defined by Return on Equity (ROE). Daily Returns of Ionics will only be compared with that of Music Semiconductors Inc. (Music), since it is the only firm in the industry in a similar line of business with that of Ionics. Comparison will be done by applying T-test on the two groups to determine if their mean Daily Returns are statistically different from each other. But before applying the T-test, F-test will first be used on the two groups to determine what kind of T-test will be used. After determining whether or not their Daily Returns are significantly different, the standard deviation of the two groups will be established to verify what company’s daily stock returns, and consequently, stock prices, are more volatile. Yearly Returns will now be used to compare the profitability of the companies belonging to the industry. A ranking of the ROE’s of all the companies in the industry will be made per year. From all of these Yearly Ratios, an industry average will be produced per year. Ionics will then be compared for significant difference, using T-test and F-test, with the industry average of the ROE’s per year and with the ROE of Music per year. Operational Performance will be determined using the financial ratios used in a study by Belden, et al. (2001). These ratios will be applied to all the companies in the industry and ranked per ratio, per year. An industry average for each ratio, per year, will be computed for purposes of comparison. F-test and T-test will then be applied to Ionics, comparing it to the industry averages and to Music.

1.3. Major Findings From interviews made by the group, several significant changes were made collaboratively by ICCP and Ionics into Ionics. Examples of such improvements were formalization of a pay scheme and salary structure, improved financial reporting and transparency and manualization of functions and policies. All of these changes were accordingly geared toward a plan of public listing in the future. An overall cohesiveness among lower management and employees of Ionics was also brought about by the venture capital partnership. Daily Returns of Ionics proved to be more stable than that of Music, as reflected by their standard deviations. Ionics also displayed above average performance in Yearly Returns for the period covered and statistical difference when compared to Music. Ionics’ IPO price was overvalued, as shown by its Tobin’s Q. But in the long-run the stock price began to level to be fairly priced. 6 The P-E Multiple of Ionics at its Offer Price, at 12. 7 times, was also lower compared to the average P-E multiple of the IPOs for 1994 which is 18.91. For Operational Performance, Ionics also showed consistent performance for the different ratios for the period covered, displaying a near consistent position in the top three marks. Comparing Ionics with the industry, Ionics exhibited significant differences for half of the ratios applied. Comparing Ionics with Music, Ionics displayed statistical difference for the two ratios used.

1.4. Conclusion ICCP accomplished the role of a venture capitalist during its partnership with Ionics, investing capital in the firm, performing an important role in being a co-manager and decision maker in Ionics. Professionalization was also brought into Ionics by ICCP. Critical policy changes geared toward continuous development and public listing were all executed for the benefit of Ionics. Staff and management efficiency was then attained because of several improvements in the working environment of Ionics. Ionics’ Market Performance was also benefited by their venture capital partnership with ICCP. Ionics experienced stable daily prices and daily returns, verifying the “certification role” of a venture capital. It even became the “Darling of Philippine IPO’s” at that time. The reputation capital function of a venture capital was also displayed by ICCP when Ionics consistently outperformed the industry. As a whole, the venture capital activities between Ionics and ICCP can be characterized in three interrelated facets, reputation capital, collaborative business 7 development and involved investor role. A venture capital funding is indeed better compared to traditional funding sources.

1.5. Recommendations The proponents of this study recommend that there be more studies based on the performance of Philippine venture capitalists. Future studies should also focus more on venture capitalist involvement in emerging industries to be better able to observe the process in a dynamic setting.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU13563; CDTU013563

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

98 leaves : ill. (some col.) ; 28 cm. + 1 computer optical disc

Keywords

Venture capital--Philippines; Investments--Philippines; Entrepreneurship--Philippines

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Embargo Period

4-3-2025

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