Initial public offerings

An IPO raises primary capital for growth, gives early investors and employees liquidity, and creates a listed currency for acquisitions and pay. The cost is ongoing disclosure, quarterly scrutiny and loss of some control.

The company hires underwriters, prepares a registration statement or prospectus with audited financials, and goes through regulatory review. Analysts and bankers build a valuation, then management runs a roadshow presenting to institutional investors. Orders are collected in a book, and the price is set the night before trading begins.

IPOs are usually priced at a discount to the expected trading value — often 10–15% — to reward investors for taking a risk on a new stock and to encourage a strong first day. Too large a first-day pop means the company left money on the table; a fall below the offer price damages the issuer and the bank.

Underwriters earn a gross spread, a percentage of the proceeds shared among the syndicate. The greenshoe option lets underwriters sell up to 15% more shares, which they use to stabilise the price after listing.

Direct listings allow existing shares to trade without raising new capital or underwriting. Special-purpose acquisition companies take a private company public through a merger. Each trades certainty of proceeds and price discovery differently; know one advantage and one risk of each.