The transformation of a private, closed company into an open and public company by offering its shares to the public is called the IPO process. This process usually consists of the preparation of the legal ground, which takes some time, and a few initial public offering steps.
Since companies offer their shares to the public for the first time, there may be opportunities for investors, as well as some risks, such as fluctuations. Companies usually create the capital they need in IPO processes and develop their reputations positively.
When a company goes public, it is not only a financial process, but also many legal, regulatory and structural changes are mandatory for companies. Companies are now required to periodically share their closed financial statements with the public.
In order for the IPO process to be managed in the most efficient way, it is critical that these transformations are carried out in accordance with legal regulations.
What Is an Initial Public Offering?
Initial public offering, or IPO for short, is the start of a new process where companies present their private and closed financial situations to the public, and the public can become a rightful owner. Companies usually change their private capital structures in IPO processes.
From the moment they start trading on the stock exchange, it is now possible for all public members and market participants to acquire rights in this company and to gain a certain level of partnership.
If companies share their growth strategies with the public with the right presentations during this process, they will have access to the capital they need. Rights acquired at a lower price at an early stage can also provide profitability for investors in the medium and long term.
Moreover, not only financial profitability, but also elements such as brand awareness and prestige are important for companies in IPO processes.
What Are the Types of IPOs? (Fixed Price vs. Book Building)
Although IPO processes generally have similar dynamics, it is known that there are basically 2 different types of IPOs. In the context of Fixed Price vs Book Building IPO, these two types of IPOs can be compared as follows:
- In the Fixed Price IPO process, the price of the shares offered to the public by the company is known in advance. However, in Book Building IPO processes, the price is not fixed and is shaped according to investor reactions.
- In the Fixed Price IPO process, price balancing cannot be done according to the demand of investors. However, in Book Building IPO processes, the final price results entirely from the supply-demand balance in the market
Basically, you should determine which of these two types of IPOs (book building vs fixed price IPO) is suitable for your financial planning. It is known that these two types of IPOs are generally applied as a hybrid in large and profitable transactions.
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Step-by-Step Breakdown of the IPO Process
Within the scope of the IPO step-by-step guide, an IPO process is usually not completed in minutes. This process may require much legal and judicial structuring. The first step is the decision-making process. Usually, the company's management team must make this decision.
Then comes the preparation step, where the financial statements are prepared. The underwriter is selected in the next step. A financial advisor can also be selected in this step to facilitate the solution of potential problems that may be encountered in this process.
The prospectus, which includes the company's financial statements and reports, and operational operations, should be prepared in the next step. All legal, structural, financial processes and your history require regulatory approval. In the next step, you wait for the approval of the regulatory authorities.
After the approval, the shares offered according to the interest of investors start trading and the price stabilizes. For the question "how does a company go public?" these steps can be summarized as follows:
- Decision making
- Preparation
- Advisor and bank selection
- Prospectus preparation
- Regulation process
- Market launch
Who Regulates IPOs and Sets the Rules?
Depending on which country and stock exchange you are in, the institutions that determine and regulate the legal basis and rules of IPO processes may vary. However, institutions such as the Securities and Exchange Commission (SEC) generally optimize this process.
These institutions provide the following results while regulating the IPO process:
- ensuring investor safety
- preventing disinformation and manipulation
- ensuring the continuation of order in the market
- ensuring investor confidence
Usually, these opportunities are usually managed with strict controls under the "IPO rules and regulations explained".
How Is the IPO Price Set?
In IPO processes, the price of publicly offered stocks can be balanced or determined in different ways. If the fixed price IPO model is used in the IPO process, a fixed price is usually determined as a result of the cooperation of companies and financial advisors.
However, in the book building IPO process, the price of the stock is shaped by the reactions of investors or the supply-demand balance in the market.
Some common elements taken into account when setting the IPO price for both models can be listed as follows:
- The company's current financial reports
- Growth potential - comparison with similar companies in the same sector
- Analysis of investor demands
- Investor interest and the width of the investor base
These factors can be sufficient answers to the question "How is an IPO structured?" You can now choose your investment platform with BlueSuisse to discover opportunities during IPO periods.
What Happens During the IPO Day?
In order to understand the IPO process, it may be useful to answer the question "What Happens During the IPO Day?" When the day of the IPO of a company comes, the shares are offered to investors at a determined price.
The day they start trading on the stock exchange is an exciting day for companies. The share price may rise or fall rapidly in the first hours. Price fluctuations during IPO periods are generally expected. Investor interest shapes price fluctuations.
It is possible to form an impression about the company by looking at the interest in the stock on the IPO day. If the interest is high, this development is newsworthy in financial bulletins. Your story of becoming a professional investor is much easier with BlueSuisse.