Initial public offerings are about more than business decisions. An IPO represents the moment when a company transitions from being small-time to running with the big leagues. Certainly, it can be frightening for any business owner. But it also opens up companies to new and exciting opportunities that would be otherwise impossible to even imagine. Still, there are business decisions to be made, and plenty of tasks to handle — from quarterly snapshots to secondary offerings. There’s a big difference between running your company’s daily tasks to making it public. This is why many business owners choose to hire professional help when opening their company to the public. In this case, they’ll often end up looking into an IPO firm. IPO firms employ prime brokers, and can therefore offer prime brokerage services. As exciting as IPOs are, however, they also make or break the future of some companies. Below, we’ll look into the basics of IPOs — what they are, how a business can ensure a better possible outcome for their IPO, and much more. You would be amazed by how much a difference small details can make. The information attained from a quarterly snapshot could completely change the way you plan your IPO.
The Basics Of An IPO
It’s not as if you can simply open your company up to the public and hope for the best. There are plenty of things you need to do when conducting an IPO. There are quarterly snapshots to consider, as well as the all-important lock-up period. The lock-up period is a legally binding contract between the underwriters and the insiders of a company. This prohibits them from selling any stock for a specified period of time. Depending on what they agree upon, this period of time could last anywhere from three to 24 months. Another thing to take into consideration is how much of the company is going to be offered up in an IPO. This could be another thing judged in part based off of a quarterly snapshot. Usually, an IPO involves offering up about 10% to 15% of the company. This ensures that the owners still have enough stock to exert the control that they need to over how the company is run. The prices of an IPO will be, on average, 13% to 15% less than the trading price. Now, there is no way of looking into the future and knowing how an IPO will turn out. But there are ways in which you can make a good prediction.
Understanding The Probability Of Your IPO’s Outcome
Think about how the market is going before you take your company public. Typically, an IPO will go well if the markets are going well. If you have reason to believe that the SandP 500 is going to reach double digits next year, the IPO will likely outperform that benchmark. Think too about those who benefit from IPOs. They usually benefit institutional investors willing to buy large amounts of stock before the company’s debut. They can provide companies triple-digit gains on their first day of trading. One of the simplest ways of understanding how your company is going to do following an IPO is by looking at how similar companies have fared following their IPOs.
Looking Into The Outcomes Of Other IPOs
In recent years, many strong private companies have gone public. For example, the makers of Fitbit offered 36 million shares at a public offering valued at $741 billion. Their stock has since risen by 50%. Fitbit is proof that you can value your company with a strong estimate and succeed. Other top-performing companies include Etsy Inc., which opened up 94% from its indicated price and Shopify Inc. which opened up 52%. If your company falls into this sector, you can take cues from these companies. If it doesn’t, however, you should look to past IPOs from companies that do fall into your sector for guidance.