An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. The transition from a private to a public company can be important for private investors to fully realize gains from their investment as it typically leads to higher valuations and share premiums. It also allows public investors to participate in the offering.
A company planning an IPO will typically select one or more underwriters. They will also choose an exchange in which the shares will be issued and subsequently traded publicly
The 2008 financial crisis resulted in a year with the least number of IPOs. After the recession following the 2008 financial crisis IPOs ground to a halt, and for some years after, new listings were rare. More recently, much of the IPO buzz has moved to a focus on so-called unicorns – startup companies that have reached private valuations of more than US$1 billion in a very short amount of time.
Investors and the media heavily speculate on these companies and their decision to go public via an IPO or stay private and gain a proven track record of financial performance.
The primary objective of an IPO is to raise capital for a business. It can also offer other advantages.
• The company gets access to investment from the entire investing public to raise capital and thereby increases demand for its shares.
• Facilitates easier acquisition deals (share conversions). Can also be easier to establish the value of an acquisition target if it has publicly listed shares.
• Increased transparency that comes with required quarterly reporting can usually help a company receive more favourable credit borrowing terms than as a private company.
• IPOs can be used as a consideration to incentivise employees through Employee Share Ownership Plans (ESOPs).
Should you require advice on floating your company or raising capital, please contact us at Audley Chaucer Solicitors.