Why Company Go Public

Topics: Stock market, Initial public offering, Venture capital Pages: 8 (2117 words) Published: January 23, 2012




List of Content

List of Content2
Reasons for listing3
Advantages of an IPO5
Disadvantages of an IPO5
Bank Central Asia History7

An initial public offering (IPO) or stock market launch is, as it sounds, the first sale of a company’s shares to the public and the listing of the shares on a stock exchange. In the UK, IPOs are often referred to as flotation. IPO was originally an American term but is now used across all world markets. The shares offered may be existing ones held privately, or the company may issue new shares to offer to the public. Companies choose to offer shares to the public to raise new capital for the company; to widen the shareholder base of the company; to give the shareholders a liquid market in which to trade their share; achieve the publicity that a public listing brings. Companies might choose to list on the market by a private placing of shares to institutions rather than a public offering. There have been several online flotation sometimes referred to as EPOs (Electronics Public Offerings). Many companies that undertake an IPO also request the assistance of an investment banking firm acting in the capacity of an underwriter to help them correctly assess the value of their shares, that is, the share price. Whoever is raising the funds, the process of flotation is arduous, involves significant time commitments from the company’s management and advisor (investment bankers, stockbrokers and solicitors amongst others), and is not cheap. This effort is expended in order to raise the cash required at a price that keeps both the vendor and the purchaser of the shares happy. Reasons for listing

When a company lists its securities on a public exchange, the money paid by investors for the newly issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a wide pool of investors to provide itself with capital for future growth, repayment of debt or working capital. A company selling common shares is never required to repay the capital to investors. Once a company is listed, it is able to issue additional common shares via a secondary offering, thereby again providing itself with capital for expansion without incurring any debt. This ability to quickly raise large amounts of capital from the market is a key reason many companies seek to go public. The three main interested parties in an IPO (the vendor, the company, and the investor) have complementary objectives. The Company will want to:

* Maximize proceeds
* Build broad and stable ownership base
* Raise its profile
* Facilitate future fund raising and possibly future acquisitions * Ensure that there is a good liquidity in secondary market trading * Be seen as launching a successful IPO.
The Vendor, or selling shareholder, wants to:
* Maximize proceeds
* Maximize value of retained interest/share price performance * Be seen as part of a successful transaction
Investors will want to:
* Maximize share price return (short and long-term)
* Broaden and diversify portfolio
* Accumulate a position not easily found in the secondary market

Companies undertake an IPO for one of two reasons:
* To raise capital for the company’s use (a ‘primary’ offering). * To raise funds for the existing shareholders (including venture capitalist and governments, as in privatizations, etc.) (a ‘secondary’ offering). The terms primary offering or primary issue and secondary offering or secondary issue are often used to classify the recipient of the proceeds. Proceeds from a primary offering go to the company – it...
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