Initial Public Offering, or IPO for short, is the process of a company making its shares publicly traded on stock exchanges. Within the scope of the IPO definition, "a company is now traded on the markets" would be a suitable proposition.
In general, during the IPO process, companies increase their capital with the support of the public, positively develop the reputation of the brand, and make it possible for more investors to access it. The IPO process can be easily understood for beginner level investors.
The opportunities and market dynamics in the IPO process are not complicated and difficult for beginner level investors. You can follow the markets digitally with the digital analysis tools offered by BlueSuisse.
What Does IPO Mean in the Stock Market?
In IPO stock market ecosystems, instead of a company being a private and closed company, it means that its commercial figures and financial growth statistics are shared publicly. The company is now publicly owned.
Investors at all levels gain commercial outputs such as partnership rights and voting rights in this company in parallel with the amount of stocks they purchase. After the IPO, companies are traded on a stock exchange in accordance with their own locations and regulations.
For example, when a technology process established in New York plans to manage the IPO process, it can start trading on the New York Stock Exchange after the necessary steps and expand its investor base through investors in New York.
How Does an Initial Public Offering Work?
How does the IPO process work? This question may seem complicated at first, but it is possible for a company to offer its shares to the public in a few steps.
So what are the steps of the IPO process? First of all, the company must have an agreement with an investment bank.
Accessing this service, which is usually provided through state banks, is much easier today thanks to digital tools. The IPO process requires that the most suitable investment bank be researched first. Then, the documents and regulatory requirements requested by this investment bank for the IPO should be prepared.
After the control and demand collection process, the shares start trading on the stock exchange:
- Preparation and research process
- Collection of legal documents such as prospectuses
- Obtaining approval from the CMB or other regulatory bodies
- Determination of the ideal price range for a stock
- Demand collection process (usually a minimum number of investors is requested)
- Shares start trading on the stock exchange
Why Do Companies Go Public?
If an individual interested in the stock markets asks the question "Why do companies go public?", the biggest answer is still to create capital in addition to all these elements.
So what is the main reason why a company is interested in the IPO process and why do companies offer their shares to the public?
The answer to this question is actually very simple: To increase their capital. Usually, companies start exploring IPO opportunities especially during the establishment and growth periods and want to expand their investor base by offering their company shares to the public.
In addition to financial support, increasing prestige positively, establishing contacts with investors from different sectors by increasing the number of investors, and gaining new partners by selling large amounts of stocks and strengthening in the market are other motivations for companies in the going public process.
No matter where you live in the world, you can discover common stocks opportunities with the licensed and regulated investment platform offered by BlueSuisse. Open your live trading account now for free!
Who Is Involved in the IPO Process?
IPO processes involve many people and institutions with many responsibilities and influences. First of all, the board of directors of the company offering the IPO is definitely involved in this process. Then the investment bank is also involved.
While managing the process, third-party participants such as lawyers and financial advisors are also needed. Sometimes institutions that oversee regulatory requirements such as the capital markets board are also involved.
The question "who is involved in an IPO?" can be answered with the following examples:
- the company's board of directors
- investment banks
- lawyers
- financial advisory services
- supervisory mechanisms
Key Steps in the IPO Process
The IPO process can be understood with a few simple steps in terms of "IPO steps for beginners".
Here is how does an IPO work step by step and the basic steps in this process can be listed as follows:
- Being convinced that the company has reached the point of public offering and making a decision
- Preparation and research process
- Investment bank research
- Preparation of documents required by necessary regulations such as prospectus and preparation of financial statements
- Waiting for approval from regulatory authorities
- Pricing
- Announcement of the public offering and start of trading on the stock exchange
Initial public offering process, although it may show slight variations in different countries and different market conditions, is generally the process.
How Is the IPO Price Determined?
The IPO price determination process is usually the determination of the real and ideal price of the shares offered to the public by the company.
In this process, many factors such as the company's potential growth rate, the number and impact of investor demands, and the sector in which it operates are evaluated together.
These steps can be made for how companies prepare for an initial public offering. Usually, in the early days of the IPO process, an ideal price is determined first and the process is reshaped according to the supply-demand balance.
The final price is determined in the medium term according to the reactions of investors. In the IPO price determination process, companies may not always have a direct say. According to the normal conditions of the market, the final price is mostly balanced depending on supply and demand.
With the mobile application, you can follow the common stocks markets whenever and wherever you want on the BlueSuisse platform. To get started with the trading market, open your demo account online with just a few steps.
What Happens After a Company Goes Public?
After a company goes public, certain scenarios await. After the IPO, the company's stocks start trading on the stock exchanges and during this process, the aim is to reach potential investors. In line with this, companies create strategies that try to increase their reputation and brand awareness.
After the IPO process, companies are required to periodically share their financial statements with the public, unlike before. In this way, investors can follow the financial growth of the company. These statements or reports are usually announced with the approval of auditing institutions.
From time to time, investors' reactions change due to market fluctuations and there may be a decrease in the value of the shares that the company offers to the public.
In other words, the biggest variability in the scope of "What happens after a company goes public" may be the obligation to share financial statements.
Key Terms Associated With IPOs
There are some financial terms that are frequently encountered during the IPO process.
Among these, we can list the most commonly used ones by investors and companies as follows:
- Prospectus
- Book building
- Underwriter
- Lot
- Roadshow
If it is necessary to explain these terms within the scope of IPO terms explained, short definitions can be made as follows.
- Prospectus: It is usually the process where the company's financial reports and financial statements are requested
- Book building: the process of reaching potential investors among investors in the market
- Underwriter: an investment bank that acts as an intermediary and offers solutions for financial processes
- Lot: a unit of stock number, is frequently used by investors
- Roadshow: presentation processes made to attract investors' attention.
You can optimize your portfolio with investment tools such as MT5 platform support at BlueSuisse.