Initial public offering (IPO)

An Initial public offering (IPO) marks the first time a company sells shares to the public. It’s also known as ‘listing’ or ‘floating’ on the public markets.

An IPO is the first time a business raises finance publicly (before an IPO, you can only raise funds privately). Going public allows you to raise large sums of money from new investors (e.g. for expansion) and gain a large number of new shareholders while retaining control of your company). Existing (private) equity investors might drive an IPO because they’re looking to sell their stakes in your business.

Floats or IPOs are generally undertaken by smaller companies looking to expand or by large privately-owned companies who want to become publicly traded.

There are a number of reasons why a company may consider offering their shares to the public. It can:

• provide cheaper and quicker access to capital
• attract and retain better management and employees
• assist with the purchasing of other companies
• add to the liquidity for existing equity holders
• provide greater exposure and prestige.

But there are some disadvantages:

• significant legal, accounting and marketing costs
• ongoing requirement to adequately disclose financial and business information
• a risk that the required funding will not be raised
• significant time, effort and attention of senior management.

An IPO is often called long-term, patient capital because once you have gone public; you can raise money time and time again, over years and even decades.

Public companies have to disclose financial information regularly. This means keeping shareholders and the market (including your competitors) updated with half-yearly and annual results.