What is an IPO?

Chapter 1: Introduction

IPO is the first sale of shares (or "Public Shares") by a company to the Public on a stock exchange, the full name of which is Initial Public Offering (Initial Public Offering), but people usually refer to it simply as "listing" synonymous with it ".

Which exchanges are Phronimos Group talking about? May include the London Stock Exchange, the New York Stock Exchange, Euronext, the Hong Kong Stock Exchange or the Shanghai Stock Exchange (and many others). However, the exchange is not necessarily a large enterprise, it may be an exchange focused on small companies, such as the London Alternative Investment Market (AIM).

Chapter 2: Why an IPO?

There are many reasons, and one important reason is to raise more money by issuing shares to the public. It is usually due to the need to expand the company, which may be to develop the company's existing business or to acquire other companies.

But there are other reasons: one is to spread risk to a wider range of investors (in addition to the company's founders or initial funders).

Another reason may be because the early shareholders of the business want to cash out. For example, if a private equity firm has invested in a business but now wants to convert its investment into cash, it can cash out through an IPO. This is a good way to get out of the business.

Chapter 3: How to make an IPO?

Companies planning an IPO often begin preparations months (or even years) in advance. Because it needs to ensure that its accounts, management institutions and internal processes comply with the relevant rules of the stock exchange selected for listing.

On the advice of stockbrokers, securities firms or investment banks authorized to engage in the listing business, the proposed listed company and its advisers will first prepare a sales document or "prospectus". All the details of the company will be listed in the IPO sales document.

The company then announces its intention to go public in newspapers or on the Web through consultants. Stocks are usually sold to institutions such as pension funds, insurance companies and investment funds.

These institutions and investment banks may also underwrite these shares, which means they agree to buy back all the shares unsold during the IPO. The company's advisers will look into setting a price for the shares that ensures they can be sold so that the underwriters don't have to buy them again. Of course, they sometimes make mistakes.

Chapter 4: What to Do Next?

Life is not a simple repetition. After the IPO, the company will list the shares on the selected exchange. This means it also needs to be subject to wider public scrutiny and media attention, for better or worse!

If the business succeeds, the stock will appreciate and all shareholders will receive a capital gain. Shareholders typically include company executives and start-ups, and sometimes employees (provided they bought or received stock at the time of the IPO).

Things don't always go smoothly. Stock prices sometimes fall. And sometimes, especially for small companies, investors are not very interested in buying and selling stocks, which are considered "illiquid". This is a risk that every listed company must take.

By the way, you might think that only small companies have IPOs, so let me show you some big numbers: 2014, chinese online shopping service giant Alibaba Group has conducted the largest IPO in history, with a financing amount of 25 billion US dollars, even surpassing Facebook, which went public in 2012 and raised 16 billion US dollars.