Initial public offer (IPO) provides a company with an opportunity to advertise its shares to the general investors for the first time. The shares are then listed in the national securities exchange market. This enables the company to create a market for the shares it is willing to sell to the investors. The company will have financial opportunities as it will raise funds from the sale of shares. The competitive advantage of the company will increase.
During the IPO process, the investment bank acts as an intermediary between the company and potential investors. The investment bank provides the basis upon which underwriting agreement is formed. The bank will advise the company on the appropriate time to go public. It avails fair and accurate information on investors, which will help the company to avoid fraud in selling securities.
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There have been emerging IPOs in the stock exchange market, and the common ones are peloton, slack, and uber.
Slack
The investors in this company are getting up to $28 a share to sell some of their holdings ahead of public offering. Its shares were priced at $11.91 a piece in August at a valuation of over $ 7 billion.
Uber
This company recently priced its public offering at $45 a share and the company was able to raise $8.1 billion from this IPO. Increased competition has made the company incur a loss of $1.1 billion in the last three months.
Peloton
This company priced its IPO at $29 per share. It is selling 40 million Class A shares to raise $1.16 billion with a valuation of more than $8 billion.
IPO enables the company to raise capital from the sale of shares, which will be used in the research and development of the company (Lowry, Michaely & Volkova, 2017). IPO creates increased public awareness of the company, and this will result in a higher market share. However, IPO has several disadvantages. It is more expensive for smaller companies as the cost of complying with set standards is very high. IPO is time-consuming as it involves lengthy procedures to be followed before it is carried out.
Reference
Lowry, M., Michaely, R., & Volkova, E. (2017). Initial public offerings: A synthesis of the literature and directions for future research. Foundations and Trends in Finance , 11 (3–4), 154–320.
