IPOs

An initial public offering (IPO) is the process by which a private company sells its shares to the public for the first time and becomes a publicly traded company. IPOs are used to raise capital, provide liquidity for founders and early investors, and increase a company’s visibility in the market.

The process typically involves selecting underwriters, conducting due diligence, and filing with the relevant securities regulator (for example, a regulatory body such as the U.S. Securities and Exchange Commission). A draft prospectus is prepared, and the company conducts a roadshow to market the offering to potential investors. After pricing, shares are allocated and the company lists on a stock exchange.

Pricing and allocation are guided by underwriters who form an institutional book to determine the offer price and the number of shares. The underwriters may include a greenshoe option to sell additional shares if demand is strong. After the offering, trading begins on the listing date, and the price moves based on market demand and supply; stabilization activities may occur to support the price in the short term.

Regulatory requirements include ongoing disclosure, governance standards, and periodic reporting. Public companies must file regular financial statements, adhere to corporate governance norms, and maintain investor relations efforts. The costs of an IPO include underwriting fees, legal and accounting expenses, printing and listing fees, and ongoing compliance costs.

Impact and considerations: IPOs provide access to capital and increased liquidity but introduce substantial regulatory burdens, costs, and volatility. They can distract management attention during integration and growth, and there is a risk of underperforming post-IPO. Alternatives include direct listings, private placements, or secondary offerings.