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Ultimate Guide to IPOs and Investment
So, if you’re reading this thinking about an IPO many congratulations to you as you must have a very successful business and the question for you is an IPO the way to go. However, First Celtic have better options for the majority of companies who want to go public via an IPO.
What is an Initial Public Offering (IPO)?
An IPO is the process by which a private company issues its first shares of stock for public sale. This is also known as “going public.”
Companies do not begin an IPO upon launch. While successful startups may go public eventually, it takes a firm time to establish the necessary business plan and market position. This is, in part, so that the firm can attract investors and in part so that it can meet many of the SEC’s qualifications for an IPO.
What is the Reason for an IPO?
The two main reasons for a firm to launch an IPO is to raise capital and to enrich prior investors. These are not unrelated.
By going public, a firm gets access to the entire world of possible investment. This can give it access to substantially more capital than most firms can get through private shareholders or venture capitalists. Typically, a firm will launch in IPO when it reaches a plateau in what it can achieve through private capital and will use those funds to expand or continue growing.
Another reason especially for Industrial businesses is that companies bidding for Government contracts can only bid based on their capitalization so once an IPO has taken place they can get more and bigger contracts.
How an IPO Works in Practice?
An initial public offering is the process of structuring a firm’s shares for sale, establishing stakeholders, and establishing regulatory compliance chiefly centered around financial disclosures and transparency. Most of this process exists to protect the general public from purchasing shares in fraudulent companies.
While the full process of an IPO involves a significant amount of both legal and accounting detail, here is the general framework:
The firm hires an underwriter, almost always an investment bank, to advise and fund the IPO. This bank will typically approach institutions and investors to create initial interest in the IPO in what is called the “road show” and will help with the disclosures and regulatory process.
The underwriter may also guarantee the initial public offering by purchasing the company’s entire offering at an agreed-upon price, then selling that stock publicly itself. This is called a firm commitment. The alternative is a best-efforts agreement, in which the underwriter sells the initial shares but does not provide any financial guarantees.
So Why Would You Want an IPO?
The simple in the world of investments and stock markets big is beautiful. If you have a small successful business with under 1 million net profit a year and looking for a buyer, you will be lucky to find a buyer at 4 times net profit and the stock market companies would not be interested in buying your business. However, at the very top end of the market when we start to talk about hundreds of millions your business could be valued up to 20 times the net profit and you don’t have to worry about finding a buyer but clearly you wouldn’t want to dump your stock all in one go.
Are there Alternatives to an IPO?
Generally, IPOs take a very long time to conclude because of the very long-winded due diligence requirements so in a lot of cases you can achieve a lot of what you need from venture capitalist and private investors. However, accessing them is also very difficult if you are not connected hence why an IPO seems the logical step forward especially if your business has the turnover and product to justify it.
There are many different ways that First Celtic can show you to get the benefits of an IPO without the costs and heartache of a traditional IPO. Such concepts and ideas include SPACS, Reverse Takeovers and Agglomerations.