**Group 1: History of Initial Public Offerings (IPOs)**
– The concept of public shares dates back to the Roman Republic with the publicani issuing shares.
– Publicani were legal bodies with shares traded near the Temple of Castor and Pollux.
– The practice of publicani and public share trading declined with the fall of the Roman Republic.
**Group 2: Advantages and Disadvantages of IPOs**
Advantages:
– IPOs allow companies to raise capital for various purposes like growth and debt repayment.
– They enable companies to enlarge their equity base, access cheaper capital, and increase exposure and prestige.
– IPOs attract better management and facilitate acquisitions and financing opportunities.
Disadvantages:
– IPOs involve significant legal, accounting, and marketing costs.
– Companies have to disclose financial and business information.
– Management requires substantial time and effort, and there is a risk of not raising the required funding.
**Group 3: IPO Procedures and Planning**
Procedure:
– IPO procedures are regulated by laws specific to each country.
– In the US, IPOs are regulated by the Securities Act of 1933.
– In the UK, the UK Listing Authority reviews and approves prospectuses.
Planning:
– Companies need a strong management team and should grow with an eye on the public marketplace.
– Audited financial statements using IPO-accepted accounting principles are essential.
– Establishing good corporate governance and insider bail-out opportunities are crucial in IPO planning.
**Group 4: Legal Concerns and Enforcement in IPOs**
– Legal actions by authorities like the New York Attorney General have addressed issues in IPOs.
– Violations such as spinning of hot IPOs and fraudulent research reports have led to legal actions.
– Settlements have focused on addressing conflicts of interest and inappropriate influence in IPO processes.
**Group 5: Notable Aspects of IPOs**
– Dutch Auction: A method of IPO pricing based on price aggressiveness, used by companies like Google in 2004.
– Quiet Period: Time windows in securities law restricting discussion or promotion of the IPO.
– Delivery of Shares: Process ensuring proper transfer of shares post-IPO.
– Stag Profit (Flipping): Gains from IPO stock value rise, popularly known as flipping.
– Largest IPOs: Notable IPOs like Saudi Aramco’s $29.4B IPO in 2019 and Alibaba Group’s $25B IPO in 2014.
An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment banks, who also arrange for the shares to be listed on one or more stock exchanges. Through this process, colloquially known as floating, or going public, a privately held company is transformed into a public company. Initial public offerings can be used to raise new equity capital for companies, to monetize the investments of private shareholders such as company founders or private equity investors, and to enable easy trading of existing holdings or future capital raising by becoming publicly traded.
After the IPO, shares are traded freely in the open market at what is known as the free float. Stock exchanges stipulate a minimum free float both in absolute terms (the total value as determined by the share price multiplied by the number of shares sold to the public) and as a proportion of the total share capital (i.e., the number of shares sold to the public divided by the total shares outstanding). Although IPO offers many benefits, there are also significant costs involved, chiefly those associated with the process such as banking and legal fees, and the ongoing requirement to disclose important and sometimes sensitive information.
Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus. Most companies undertake an IPO with the assistance of an investment banking firm acting in the capacity of an underwriter. Underwriters provide several services, including help with correctly assessing the value of shares (share price) and establishing a public market for shares (initial sale). Alternative methods such as the Dutch auction have also been explored and applied for several IPOs.