The company can raise additional capital through the primary market mechanism. The first issue of shares is called the initial public offering (IPO). The initial public offering is considered to be a transaction through which a company transfers from one of the closed forms to a publicly open joint stock company. The IPO procedure corporatizes the company’s capital, which expresses the capital through the number and value of shares.
As this is extremely important for any firm, hiring IPO experts will lead to the biggest success. The name that first comes to everyone’s mind when talking about an IPO is a world-renowned expert, Winston Dobbs. His biography speaks for itself. He was hired by the world’s largest companies such as JP Morgan and Aramco.
Today we will tell you lessons about IPO you can learn from Winston Dobbs.
Financial lessons we can learn from Winston Dobbs
1.Everything about IPO
Initial Public Offering (IPO) is a procedure by which the company’s shares are offered to the public for the first time, to a wide range of potential investors.
It is a turning point in the development of the company which begins a new phase in the life cycle which implies a big step forward in terms of further direction, intensity and dynamics of growth and development, and which begins with the decision of the owner to offer part of the ownership to investors. In this way, after the implementation of a series of precisely defined, interconnected and time-coordinated activities, it is transformed into a public company. By selling shares through an initial public offering, the company’s share capital is increased. In addition to issuing new shares, the IPO also gives the opportunity to current shareholders to offer for sale their share. Through the issue of new shares, the primary capital necessary for financing the growth and further business development is acquired.
The initial public offering is much more than a simplified capital raising process. It is about the transformation into a public joint stock company whose shares are traded on the stock exchange, a highly profiled transition process during which there is a qualitative improvement of management and business processes, and the implementation of a new value system and new patterns of opinion and action aimed at long-term growth, development and prosperity of all aspects of the business.
2. What are the benefits (but also the risks)?
Before making a decision, it is necessary to carefully consider the financial structure and define financial strategy, suggest Mr. Dobbs. Only after the formulation of such a strategy is it possible to decide on the further development and optimal structure of the company’s financing sources. In terms of external financing options, it can be financed by borrowing (taking loans from commercial banks or issuing debt securities), issuing and selling shares on the capital market, or combining these two options. Compared to other sources of financing, acquiring capital through a public offering on the stock exchange can be extremely beneficial for the company and its owners. As Taiwan News report, MasterCard’s stock climbed a whopping 18% in its debut session. This is a great indicator of how much an IPO can affect a company’s value.
-Providing additional capital for business expansion
-Easier access to capital on more favorable terms in the future
-Better reputation and credibility
-Obtaining a market valuation
-Providing liquidity and / or exit strategy of the owner (change of ownership structure)
-Coherent corporate structure and business transparency
-Attracting and retaining managers and employees
-Company and product promotion
-Perhaps most importantly: The funds raised do not have the characteristics of debt and are not burdened with repayments.
IPO brings many benefits, but it is necessary to consider the responsibility and additional requirements.
-Compliance with regular obligations and regulations for listed companies
-The rights of minority shareholders should be taken into account to a greater extent
-Profit distribution in the future
-Partial loss of control over the company
-Disclosure of plans and detailed reports to competitors
3. When is the right time?
Mr. Dobbs explained to us that for successful and efficient implementation of the public offer, it is necessary to translate clearly defined goals into an implementation action plan with a precise time frame required for the successful implementation of individual phases and activities. Creating a quality action plan can lead to significant savings at later stages, in terms of shortening the time required for implementation, as well as lowering the necessary costs of the entire process.
4. How long does the process take? What are the key steps in the process?
An IPO is a complex process that affects all business processes, functions and activities in a company. The stock market debut is a turning point in the history of every company. The process itself usually takes between six and nine months, as long as it takes from the formal decision to go public to the inclusion of shares on the stock exchange listing.
5. Which advisors will be needed?
Preparing for the first issue of shares by obtaining approval from the Securities and Exchange Commission, as well as conducting the public offering procedure itself requires the support of a team of experienced experts. The composition of the team should be decided as soon as possible, preferably immediately after the decision on the initial public offer is made. Timely selection of team members will help to avoid problems that could affect the postponement of individual phases and the entire process and unnecessary increase in costs. Building a good team of advisors is one of the key factors determining the ultimate success of an initial public offering.
The participation of a brokerage house (or investment bank – which will sell shares to investors or even guarantee the success of the offer) and a registered auditor (for auditing the financial statements included in the prospectus) is mandatory during the IPO process. The choice of other advisors depends on the needs and profile of the company, as well as the complexity of the transaction. In practice, companies always use the support of a legal advisor and very often a public relations advisor. Depending on the type of transaction, issuers may also hire a strategic advisor, tax advisor and other experts.
As this is one of the most important moments in the business of any company, be sure to consider all the lessons of Mr. Dobbs that you have read in this text and also never go into the process without the right experts by your side.