IPOs

Mad Money



What is an IPO?

An Initial Public Offering, or “IPO,” is when shares of a company are first sold to the public, AKA “Going Public.”

Many companies—large and small—decide to go public and offer investors a portion of the ownership of their company by selling shares of stock.

Why a company would go public

  • Raise cash to expand
  • Attract awareness and added interest
  • Gain credibility: going public is seen as a major accomplishment for a company
  • Increase liquidity
  • Attract top talent

IPOs are highly anticipated for both investors, who see growth opportunities in the company and want to invest, and for the company’s owners, who will get a payout for giving up a piece of the business

IPOs also typically generate publicity for a company. A public company has the ability to use its stock to acquire other companies and to reward valuable employees with the opportunity to buy shares and become owners.

Private vs. Public Companies


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How to get ready for an IPO

  • Hire a brokerage firm to help set the IPO price, date, and number of shares for sale.
  • Meet with investment banks to promote your company and attract their interest.
  • Leverage your pending IPO to land top-notch for your company and board of directors.
  • Meet with public investors and promote your business to research analysts in the months leading up to registration. Company executives and their bankers frequently go on “road shows” to meet with analysts, stock portfolio managers, and mutual fund managers to generate interest in the stock and assess public interest.
  • Make sure financial projections are reasonable. The goal is to continually meet or exceed expectations by setting conservative expectations.
  • Owners should be ready to spend a third of their waking hours on investor relations.

 

Fun facts:

  • The largest IPO on record was Alibaba, which was valued at US $25 Billion in 2014.
  • IPOs got their start in Roman Times. Companies known as publicani divided their ownership into shares which were sold to public investors and traded in the Forum.
  • Facebook’s initial IPO price was at $38 per share, but the stock fell as soon as it opened. The share prices fell to half its value over the next few months, but now it’s worth over $100Source: NYSE

References

  1. http://www.investopedia.com/university/ipo/ipo.asp#ixzz3sS2i1Wj5
  2. https:// finlogssc.wordpress.com/2012/08/03/ipo-trivia/
  3. http://www.statista.com/statistics/274136/number-of-ipos-worldwide-since-1996/
  4. http://fortune.com/2013/03/11/10-requirements-for-a-successful-ipo/
  5. http://www.encyclopedia.com/topic/Initial_public_offerings.aspx
  6. http://www.theguardian.com/business/2014/sep/18/alibaba-and-the-40-facts-ipo
  7. http://www.italyguides.it/en/lazio/rome/ancient-rome/roman-forum
  8. http://www.investorwords.com/411/banking_syndicate.html#ixzz3sncPDNoR

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