Initial public offering (IPO)

An Initial Public Offering, or IPO, marks a pivotal event in a company’s lifecycle. It is the process by which a private company offers shares to the public for the first time, becoming publicly traded. Companies go public to raise capital for expansion, provide an exit for early investors, or enhance credibility and visibility. However, an IPO also brings increased regulatory and disclosure obligations. Companies must select a stock exchange to list on, with options varying by geography and company size. Major exchanges like the London Stock Exchange, the New York Stock Exchange, and NASDAQ each offer distinct rules and advantages. The process of going public is intricate, involving multiple stakeholders and regulatory steps. Central to this is the investment bank, or underwriter, which manages the IPO and helps determine the offer price—a key factor in share value. The underwriter analyzes the company’s financials and tests investor interest through a ‘roadshow.’ The initial price is set within a range due to uncertainty in valuing a business without trading history, with final pricing revealed just before trading. Frequently, the share price rises above the offer price on the first day of trading—known as ‘IPO underpricing’—which benefits early investors but may mean the company raises less capital than possible. Two key attributes in public markets are liquidity and capitalization. Liquidity refers to how