What is an Initial Public Offering?

WHAT IS AN INITIAL PUBLIC OFFERING? IPO When a private company first STOCK offers shares of its stock (ownership) for purchase to the general public, this is known as an initial public offering (IPO). GOALS & REASONING AS IA PACIFIC SOUTHAMERICA There are a few main reasons MIDDLE EAST why a private company will decide to make an Initial public offering: Raise Expansion PUBLICLY TRADED Capital Become a publicly NYSE Monetize NASDAQ traded company the on a investments securities of early exchange. private investors. Gain THE PROCESS credibility and prestige. When a company is ready to offer shares of its stock to the public, there are a few major steps 4. involved: HIRED STEP 1: Company hires an investment STEP 2: The investment bank puts bank (underwriters). $$$$ together a registration statement to be filed with the SEC. This document contains information about: REGISTR The offering STATEATIo TEMENT V Financial statements v Management background Any legal problems Where the money is to be used V Insider holdings STEP 3: The SEC then requires a cooling RATION off period, in which they investigate REGISTEENT and make sure all material information has been disclosed. AUDIT Worth Considering RED HERRING STEP 4: During the cooling off period the We want! details of the proposed offering except for the offer price and the effective date are offered to potential hmm. institutional investors in the form of a document called the initial prospectus (Red Herring). Yay! Let's Do th is! IPO STEP 5: Once the SEC approves the offering, stock price and a date is set when the stock will be offered to the public. PUBLICLY TRADED R&D STEP 6: EXPANSION Finally, the shares are sold on the stock ACQUISITION market and the money is collected from investors. DISADVANTAGES Significant costs related to Marketing, Underwriting, ADVANTAGES & DISADVANTAGES OF AN IPO Accounting Company has to divulge information that could be helpful to their competitors. This can ruin a company's competitive edge High demands of time and ADVANTAGES attention by senior management. Proceeds from the IPO go directly to the company and its There is always risk that early private investors. required funding will not be raised Early investors have the opportunity to cash out, selling some or all of their shares. Loss of control due to new shareholders' voting rights. A large pool of public investors provides a diverse equity (ownership) base. Sale of shares provides capital for growth and repayment of debt. An IPO provides cheaper access to capital than taking on debt. After the IPO, a company has new options for acquisitions, potentially using the sale of its shares. Going public also offers companies new financing options including: equity, convertible debt and cheaper bank loans. A company going public carries a great deal of exposure, prestige and enhanced public image. This attracts better SOURCES: employees and management. http://www.investopedia.com/t erms/i/ipo.asp Even if the company fails, it is not responsible to pay back their investment, they must sell their shares at market https://usequities.nyx.com/listi ngs/ipo-advantages price. Lipman, International and U.S. IPO Planning, ISBN TIM TIMOTHYSYKES.COM 978-0-470-39087-0 %24 П %24