Stock market 101: Getting to grips with an IPO

Julie Brownlee, Fsp Invest, 12 Oct. 2015

Tags: ipo, what is an ipo, how an ipo works, initial public offering, listing on the stock market, stock market,

IPO stands for initial public offering. You may have heard of IPOs on the stock market.

So what exactly is an IPO?

Read on to find out…

The ins and outs of an IPO

An IPO is the first time a privately owned company offers its shares for sale on the stock market. Once a company goes through with an IPO, it then becomes a publicly listed company.

Companies decide to list on the stock market for a number of reasons. The primary objective is usually to raise money. A company can then use this money for expansion and growth.

Another reason for listing on the stock market is to allow large stakeholders in the business to some or all of their shares in the company.

What happens with an IPO?

Listing on the stock market takes a bit of time and there are different ways a company can do it.

One way it through a placement. With a placement, a bank which acts on behalf of the company that wants to list, attempts to sell blocks of shares to key institutional clients.

Another way to list is through selling shares to the public. This has more work involved and is more expensive for the company wanting to list, but it has its benefits.

For instance, if the company is a popular consumer one, the listing may attract a lot of attention and members of the public want to buy shares. For example, if the listing was for a football club or a popular retailer.

But a company can combine a placement with selling shares to the public too.

When a company decides to list, an underwriter tends to guarantee that the listing will raise a minimum amount. And before the IPO, the company must publish a prospectus. This details all the details of the offer.

So there you have it. Getting to grips with an IPO.

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