An IPO offers a company the opportunity to raise equity capital and increase its profile. Investors can also benefit from an IPO. This article explains exactly what an IPO is, how it works and what advantages and disadvantages it entails.
What does IPO mean?
Posted means IPO "Initial Public Offering". This is the Initial public offering of a company. In the course of an IPO, a company issues its own shares on the global capital market for the first time, enabling shareholders to purchase these shares.
While companies can be sold by going public new equity shareholders receive rights such as co-determination rights and can benefit financially. For example, they pursue a Dividend strategy or benefit from a Increase in value.
- The company can decide how many shares are to be offered for sale
- An investment bank supports the company and proposes a starting price based on the expected demand
- To this end, the company is valued by the investment bank
How does an IPO work?
In a first step, the company that wants to go public selects a Issuing bank oder eine Investment bank out. These help the company to plan the IPO, evaluate the company and put the plan into practice.
- This process is complex, which is why auditors, lawyers and other specialists are involved
- All financial and legal points are taken into account
This is followed by a Comprehensive evaluationto create a fair starting price to be able to estimate a price. Company data and market conditions in the specific sector are taken into account when determining a price.
The company then creates a Securities prospectus. This contains a wealth of information about the company, key figures, risks, the management structure and other data. BaFin (German Federal Financial Supervisory Authority) must review and approve the prospectus.
The so-called Bookbuilding helps with the pricing of shares. The company and the selected investment bank conduct a so-called Roadshow through. This is where the IPO is presented to potential investors. For example, institutional investors can already submit bids for shares.
The final starting price is determined in this step. Shares can already be allocated to investors, with institutional investors receiving higher stakes than private investors. The IPO takes place and investors can buy shares in the company for the first time.
Advantages and disadvantages of an IPO
Companies decide to "go public" or go public in order to new equity to raise capital. They can use this capital to reduce debt or plan expansion, for example.
Another advantage is that an initial public offering Awareness of a company increase can:
- Higher reporting can contribute to an improvement in image
- In addition, companies listed on the stock exchange have certain obligations
- For example, they must publish regular financial reports
- This can also improve credibility and trust through a high level of transparency
Diese Duties can also be disadvantageous for the company, as they are sometimes associated with high costs and effort. Such financial reports must be prepared and paid for, as specialized employees are required.
In addition, there is a high Pressure to performas soon as a company is listed on the stock exchange. Many investors want to see positive developments quickly.
In addition, the IPO process expensive. Companies need auditors, consultants, lawyers and other specialists. The costs for the issuing banks should also not be underestimated and often amount to 4 to 7 percent of the gross proceeds from the IPO.
IPO shares and appropriate investor reaction
After the announcement that a company wants to go public, there is often a lot of media coverage. Going public directly at the IPO price can Opportunities and risks with it. This is only an estimate; the price often fluctuates considerably in the days following the IPO.
Many investors deliberately wait for the first few days and observe the price trend. The Company prospectus and the future forecasts, risks and financial data contained therein provide more precise information and enable a realistic assessment of the future.
Conclusion: Importance of IPO shares
An IPO is an initial public offering of a company. A company wants to sell shares to investors and can use them to increase its equity capital, for example to finance an expansion. In addition, the Credibility and reputation des Unternehmens improved be
Possible disadvantages are the obligations associated with going public. These include, for example, the Obligation to publish regular reportswhich can be time-consuming and expensive to prepare. In addition, companies are under pressure to perform and the prices for going public are high.
In order to carry out an IPO, a company seeks the support of an issuing or investment bank. Through a complex evaluation process and a subsequent roadshow, a suitable starting price is formed.
The company also prepares a securities prospectus with numerous, Detailed information for potential investors. Once this has been checked by BaFin, the company can go public and enable investors to buy shares.