IPO -

Initial

public

offering

Plan

1.What is an IPO. 2.The stages of IPO.

3.Advantages and disadvantages

What is an IPO?

Initial public offering (IPO) or stock market launch is a type of public offering in which shares of a company usually are sold

to institutional investors that in turn sell to the

general public, on a securities exchange, for

Initialthepublicfirst offeringstime. are mostly used by companies to:

•raise the expansion of capital,

•possibly to monetize the investments of early private investors

•become publicly traded enterprises.

Stages of IPO

1.The Underwriting Process

2.Quiet period

3.Pricing of shares

4.The “road show” 5.Delivery of shares

The Underwriting Process

IPOs generally involve one or more investment banks known as "underwriters". The company offering its shares, called the "issuer", enters into a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell those shares.

A large IPO is usually underwritten by a "syndicate" of investment banks, the largest of which take the position of "lead underwriter". Upon selling the shares, the underwriters retain a portion of the proceeds as their fee.

The quiet period

An S-1document is the registration form required by

the Securities and Exchange Commission (SEC). It's a legal document that tells the world about the company's plans for its proceeds, its business model, the competition, and its corporate governance, risks, and executive

The quiet period is the period of time following the filing of the company's S-

1 but before SEC staff declare the registration statement effective. During this time, issuers, company insiders, analysts, and other parties are legally restricted in their ability to discuss or promote the upcoming IPO.

The “road show”

“Road show," - a tour to meet investors, which can occur 21 days after the public S-1 is filed.

Pricing of shares

A company planning an IPO typically appoints a lead manager, known as a book runner, to help it arrive at an appropriate price at which the shares should be issued.

The price of shares depends on the company, the success of the road show, demand, and, most importantly, current market conditions. Underwriters try to reach an offering price that is low enough to stimulate interest in the stock, but high enough to raise an adequate amount of capital for the company.

Advantages of IPO

An IPO provides several benefits to the previously private company:

Enlarging and diversifying equity base

Enabling cheaper access to capital

Increasing exposure, prestige, and public image

Attracting and retaining better management and employees through liquid equity participation

Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc.

Disadvantages of IPO

There are several disadvantages to completing an initial public offering:

oSignificant legal, accounting and marketing costs

oRequirement to disclose financial and business information

oMeaningful time, effort and attention required of management

oRisk that required funding will not be raised

oPublic dissemination of information which may be useful to competitors, suppliers and customers.

oLoss of control and stronger agency problems due to new shareholders