The global stock exchanges are made up of different companies that publicly trade their shares. Which means that anyone can acquire them and obtain the benefits that come with it, such as the payment of dividends.
The process by which a company is listed on a stock exchange is known as an initial public offering (IPO).
The general procedure to carry out an IPO is for the issuer to go to an investment bank that will act as a subscriber. Which will be in charge of selling the shares to the public.
As well as determining the best offer price, the number of shares to be sold. Will issue and the most opportune moment to put them up for sale.
The most common reason for a company to make an initial offer is that it allows them to raise a large amount of money for the growth and expansion of the company. Which is why many of the companies that make an IPO are young and in the process of maturation.
Aside from the capital raised through the sale of shares, the IPO also gives the company more exposure to the public through analyst coverage of publicly-traded companies. Which can help increase revenue, profits and the company’s market share.
Once the company carries out an IPO, it must also begin to publish its financial reports. This so that all investors know the performance that the company is having. To decide if it is worthwhile to continue investing in it.
However, like any other movement in the financial markets, carrying out an IPO can also bring some drawbacks. One of the main ones being that the initial offer fails to reach the value estimated by the company’s management.
Given that investors do not accept the price at which the shares began to be offered, which will push the price down once the IPO has concluded.
To date, the largest IPO conducted came in 2014 from Chinese e-commerce giant Alibaba Holdings Group. Which hit $ 21.8 billion, however, 4 days later subscribers exercised an option to sell more.
Shares than originally planned, so the final value of the IPO was $ 25 billion. Historically, Asian companies have had the highest value of public offerings.
Performing an IPO is not a process that can be done overnight. There are many factors that the administration must consider as well as the complications that this entails if it is not carried out correctly.
An IPO is usually expensive, so the ideal time to perform it must be carefully determined since preparation for this process can take months or even years.
At some point, many entrepreneurs have to face this challenge: choosing a financing option to maintain sustainable growth.
In addition to bank loans, private equity sales, or crowdfunding, we want you to learn about an option available to the most valuable companies: we are talking about IPOs.
In this article you will learn everything about the Public Sale Offers: what they are, what are the conditions that your company must meet to carry out this process and the advantages that operating on the stock market brings to start-up and large companies.
What is it and what does it mean to open an IPO?
An Initial Public Offering (IPO), or Initial Public Offering (OPV), represents the incorporation of a company to the stock market by issuing its first shares to attract public capital, which comes from different segments of society.
IPO is like a “pilot test” on the demand and the value that a company’s stock can have in the stock market since the amount that is issued is small.
However, it is still an excellent form of financing for a company that wants to maintain control of its business. For start-up, IPOs open the door to new shareholders who will leverage their expansion at a low cost of financing.
For large companies, IPOs help raise new funds and spread business risk among a large group of shareholders.
What is the process to issue an IPO?
IPOs operate, certain processes are carried out between the different agents of the stock market. These agents are:
- The stock exchanges
- Banks and brokerage houses
- The market regulatory commission
- The participating stations (the companies)
- Institutional investors (forces, banks, investment funds, insurers)
- Physical persons
If your company has decided to open an IPO, you should contact banks or brokerage houses to place the shares on the market. They will directly manage the purchase and sale of shares, regulated by a commission that is responsible for ensuring the transparency of the process.
Once the shares are for sale on the stock exchanges, institutional or personal investors can buy them, as long as you offer them adequate value and attractive returns.
What path must a company follow to open an IPO?
Like human beings, companies also have cycles that allow them to enter the market, plan their growth and reach maturity. Learn about the stages companies usually follow to open an IPO!
1. Introduction stage
In the first stage, companies make their first sales with which they can validate their business idea, which can be done from an MVP (Minimum Viable Product), for example.
As they are just entering a new market, their experience is scarce. Therefore, the operational risks of the business are high.
2. Growth stage
The second stage allows companies to achieve exponential growth in their sales. With these revenues, they are building a fundamental financial muscle to sustain the next stage.
3. Maturity stage
In the third stage, the volume of income has stabilized. Operational risk has been significantly reduced thanks to the experience that managers and collaborators have acquired and, therefore, the company is becoming more attractive to investors.
At this point, the company has grown considerably. However, it still needs to be leveraged to adapt to new needs such as portfolio diversification or obtaining liquidity to pay debts.
This is where businessmen and entrepreneurs should begin to review their financing options.
With the size, experience, and strength of a mature company, IPOs appear as an excellent alternative.
What factors to consider when making an IPO?
So what are the conditions a company must meet to open an IPO. We have listed some characteristics that every company that plans to operate on the stock market must-have.
1. Strong organizational culture
The organizational culture of companies that want to have an IPO must be strong and transparent.
This to maintain the maximum level of productivity and ensure the expected returns to investors.
2. Customer orientation
The ultimate goal of any business is to address the problem of its ideal customer. And This is only accomplished with a Marketing philosophy known as customer orientation.
It is useless to have infinite financial resources if all the capital is going to remain in bureaucracies or internal processes of a company. The purpose of the financing should be to provide a better service that leads to an increase in the level of sales.