Taking a privately held company public is done via an IPO (Initial Public Offering). It wouldn’t be an overstatement to say that an IPO is one of the important events in a company’s timeline. The company issues a specific number of share certificates at a stated price. Each shareholder then becomes part owner of the company, and each share can be bought or sold on the stock market where the company is listed.
It is an extremely complicated process with a maze of regulatory and compliance requirements. But the benefits, in terms of finance, are just as high. A successful and well-subscribed IPO can instantly turn a small regional company into an international corporate heavyweight.
The large amount of cash from an IPO comes in handy for bankrolling current operations and financing future projects. The best part of it is that it removes liquidity bottlenecks and reduces the company’s debt. The company enjoys significantly higher name recognition and greater trust from customers and corporate partners.
The way an IPO works is that the SEC needs the company to file a registration statement along with a prospectus detailing every aspect of the company and its business. The prospectus will also include the company’s post-IPO plans and how the company plans to utilize the funds.
The underwriters will not only assist with the filing requirements, but also the change in the company’s structure. This means they assist in the transition from a private run enterprise to a public company with a board and stockholders. But their main job is to help decide the specifics of the IPO - the pricing, the number of shares and the market.
There are significant post-IPO reporting and disclosure requirements for public companies. Publishing quarterly financial results and holding an annual shareholder meeting are two such examples. One big area where change is almost inevitable after an IPO is the management. Every company that goes public ends up hiring new executives who have experience in managing large public companies.
The success of a public offering largely depends on the growth potential of the company and its sector, and whether or not the business has sound basics and a revenue model. But many IPO’s have failed inspite of having all this. It may be because they didn’t choose the right market or the right price, or chose the wrong time to go public.
As an example, consider Canada, where an IPO won’t be able to reach the size or price that an offering in the US markets can fetch. The Canadian market has a significantly lower threshold for risk. In Europe, there are even more issues that need to be considered, like the economic conditions in each member state of the EU which affect every market in Europe.
Before 2001, when dotcoms were still in vogue, anyone with a website could file for an Initial Public Offering and watch the millions piling up as the markets kept going up. What investors want now is a safe company with lots of assets to its name and long term growth prospects. For any business that can traverse this long road to IPO success, there’s a huge reward waiting at the other end.
In order to grow and expand, many companies will go through the IPO How process and make an Initial Public Offering (IPO) to the general public. A new IPO Prospectus valuation is usually made, and Canadian IPOs are becoming more common nowadays.
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