If you’ve found yourself nodding along to a discussion about IPOs with only a vague understanding of the details, you’ll be pleased to know you’re not the only one. Commonly misunderstood, here’s a brief guide to the process to equip you with all the facts you need.
What does the IPO process mean?
IPO is short for Initial Public Offering. When an organisation goes through the IPO process, it means they sell stocks to the public and become listed on a stock exchange like the ASX. Once an organisation has ‘IPO’d’, the company’s shares can be traded in the open market.
Why would a company decide to go public?
There are plenty of reasons why leaders of an organisation might choose to IPO.
To raise capital. Shareholders can help the organisation to grow and allow management to activate strategies and plans that require significant financial investment.
To raise their profile. Since an IPO is typically viewed positively by markets and the media, going through the process can help to improve both the visibility and the credibility of an organisation.
To create liquidity for founders. In many cases, small businesses are established with a view to eventually IPO and bring in significant financial benefits for the founders.
Setting the scene for mergers or acquisitions. Once a company has IPO’d, they are able to use their shares as currency, and new shares can be created if further financing is needed.
How does a company prepare for IPO?
Most companies prepare for IPO over a one or two-year period. There are a great deal of compliance, governance, reporting and risk management factors that must be taken into account to execute an IPO effectively, so the decision to take an organisation public should be a careful one.
Once the call has been made, an organisation needs to prepare itself. Often specialist consultants are brought on board to tackle intricacies around things like communication, accounting and taxation, and a specific team within the organisation is put together to work towards the IPO in the most effective way.
Any business looking to IPO should be reviewing their structure, their management team and board, processes, controls and strategies for the future.
What happens once an organisation has completed their IPO?
The journey continues! Now that the organisation has been listed, they need to meet their obligations to their shareholders and build positive investor relations, while coming under greater public and media scrutiny. Reporting requirements need to be accounted for, and an increase in funding should see management, product and marketing strategies swinging into action.
Keeping an eye on organisations going through the IPO process can be a great way of staying open to new investments. If ever you have any questions around financial processes or concepts, don’t hesitate to give me a call – I’m here to help build your financial understanding as well as help you build your wealth.
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