IPO
IPO (Initial public offering) is the initial public offering of a company's shares on the stock exchange. This procedure is carried out by those companies that want to go public and make their shares publicly available for purchase.
The process of preparing for an IPO implies the fulfillment of certain requirements, which takes quite a long time (from several months to a year) and incurs significant costs. For these purposes, companies hire special financial advisers called underwriters, in most cases their role is played by investment banks. They help attract investors, calculate the share price and collect initial applications.
The main goal of the IPO is to attract capital from numerous investors from all over the world who will buy the company's shares on the stock exchange. Also, this procedure is used to enrich the owners and employees of the company. They may purchase a large block of shares in an initial public offering and then have their equity increased as the share price rises.
IPO is also used to improve the company's reputation in the eyes of customers, partners and creditors, determine its market value and increase business transparency, and also to protect against mergers and acquisitions. Finally, IPO companies can raise additional capital through a secondary public offering.
The IPO procedure consists of several stages, namely:
- Preliminary. The stage of early preparation for placement, which can last up to several years. In the course of it, the company assesses the effectiveness of its business and financial position, and also draws up the necessary reporting.
- Preparatory. The company finds an underwriter and makes a choice of an exchange for listing (placement) of shares. Next, she needs to complete regulatory procedures: prepare an investment memorandum and submit a package of documents to the financial regulator. Once approved, the company begins marketing activities to promote its shares to investors.
- Basic. The underwriter draws up a list of applications wishing to purchase shares at the closed stage of trading - before they are placed on the stock exchange. During this stage, the exact number and price of shares, as well as the conditions for dividends, are announced.
- Final. At this stage, part of the shares is sold to investors on a "pre-order", after which public auctions begin - the procedure for the company's IPO is considered to have taken place.
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