Companies want to go public for different reasons, depending on their circumstances. Most are looking to raise capital to fund expansion, pay debts, attract and retain talent, or monetise assets. A company may also want to list on a stock exchange to improve its public profile.
Since IPOs are conducted under a formal regulated offering document (such as a prospectus), it is possible for investors who are retail (i.e., not sophisticated or professional investors) to participate in IPOs. However, it is rare for IPO’s to be offered to the general public and the most common way to participate is if you are a client of a retail broker who has been appointed for the purposes of engaging in retail distribution of the IPO securities.
The most common way to participate is if you are a client of a retail broker who has been appointed for the purposes of engaging in retail distribution of the IPO securities.
All investors like to find the next big thing and investing in IPOs can often present this chance. Companies that IPO are typically fast growing, innovative companies that are looking for additional funds (from IPO investors) to take their businesses to the next level.
The cost of an IPO for a company will depend on the registration requirements of the stock exchange where it’s being listed. In addition, there will generally be underwriting fees and offering costs, as well as legal and accounting fees. Larger companies could face additional costs when preparing to list.
The IPO price is calculated by an investment bank. First, the company decides how many of its shares it wants to sell to the public. Then, the nominated investment bank does a thorough valuation of the business. Once that’s done, an initial share price is released, and the public can start trading shares when the listing happens.
Yes, unless you have an existing relationship with the company that requires you to enter into an escrow agreement (an agreement not to sell your shares in the company for a certain period of time), you can sell the shares allocated to you in an IPO immediately after it starts trading on the stock exchange.
The decision to carry out an IPO involves many factors, including a company’s financial performance, growth prospects, the overall state of the economy and stock market conditions in general. The company’s management and board of directors will carefully consider the potential benefits and risks of a public listing before making a decision.
Given these factors, the number of IPOs in any given year fluctuates significantly as can be seen from the number of IPOs on the ASX over the past 5 years:
IPOs 2023 = 154
IPOs 2022 = 107
IPOs 2021 = 202
IPOs 2020 = 76
IPOs 2019 = 63
IPOs 2018 = 97
No, IPOs do not always have a profit. Many times, a company is overvalued or valued incorrectly and its stock price falls after the IPO and never reaches the IPO value that investors paid for, therefore, not making any money but rather losing money.
The length of the IPO process can vary, depending on how well it’s being managed and coordinated. The financial audit stage – which is the first stage of a company going public – can be the longest, especially if the company’s books are not in order. To combat the time commitment of a traditional IPO, more and more companies are turning to alternative methods of going public, like SPACs – which can be considerably faster.
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