What is an IPO?

Vladimir Kulinich
Vladimir Kulinich
March 25, 2013
What is an IPO?

IPO (Initial Public Offering) - public sale of shares (first) of the issuing company. This is the first appeal to investors with the aim of encouraging them to become shareholders of this company. Also, this term may mean the secondary placement of a company's shares on the market, which does not distort the meaning of the term. An IPO is an opportunity to acquire shares in a company in the primary market with securities (the secondary market is an exchange). IPO can be implemented in these two options:

  • Secondary Public Offering (SPO) is a secondary (or repeated) public offering of the company's shares from the main issue (which the shareholders themselves own at this point);
  • Primary Public Offering (PPO) is a “classic” option when future investors are invited to buy shares of an additional (or new) issue.

The issuing company may also conduct an additional placement of shares (except for the initial public offering), that is, follow-on (or additional placement). At the same time, they also talk about PO (public offering), but this is not the primary placement anymore.

IPO stages

What is the IPO we figured out. Now we will consider the stages of its holding, because to get the maximum effect from such a public first sale of shares, the company just needs a number of measures for its preparation.

  • The preliminary stage is an assessment of the financial activities of specific companies, the purpose of which is to find weak points that may scare away future investors. The company strengthens its financial position and improves performance. When this is done, you can proceed to the preparation itself;
  • The preparatory stage consists of several steps:
    1. Search for partners with whom the plan will be agreed, listing, choosing a site for future trading;
    2. Creation of a document called “investment memorandum”, which provides all the information necessary for the investor (the dividend policy of the company, the price of its shares, and so on);
    3. Drafting formal documents;
    4. Launch an advertising campaign. Also, the behavior of promotional trips to major cities for the presentation of the company. Acquaintance with future investors and much more. All this is aimed at the formation of the so-called “book of applications”.
  • This is followed by the main stage, which includes the collection of applications for securities. At the same time, prices are established, taking into account received applications, these applications are being satisfied and the results are summed up;
  • The last stage will show the effectiveness of such placement. At this stage, they look at the dynamics and volume of trading, as well as other important parameters.

Now you know what an IPO is and what its stages are!

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