Initial public offering (IPO) is how private companies, for the first time, list their shares on major stock exchanges. These corporate enterprises intend to invite numerous small investors from the public to buy their financial securities. This enables the corporations to raise a relatively large sum of money as capital from these share purchasers. The companies’ funds from these potential investors allow them to maintain a steady cash flow and finance critical operations. The companies are then in a better position to exploit lucrative opportunities. However, by launching an initial public offering, the corporation’s transitioned from private-owned concerns to public entities.
Michael Saltzstein–Why do companies to launch an IPO?
Michael Saltzstein is a visionary financial specialist from America with years of valuable industry-based experience under his belt. His areas of expertise are strategic planning, economic structures, international risk services, enterprise initiatives, and multi-line claims. He has been successful in helping numerous corporate enterprises execute multi-million-dollar cost reduction schemes and maximize market coverage. As a result, these companies have minimized their operating expenses and boosted the bottom-line profit margins. As a former USA Swimming Official, he is responsible for executing a six-point plan to eradicate sexual misconduct in the sport.
According to him, private start-up companies initially resort to bootstrapping techniques to raise capital for their businesses. However, a stage will come when the corporations need more money for various reasons. These include paying off corporate debts, taking advantage of emerging growth opportunities, and diversifying their business activities. In this scenario, launching an initial public offering might be a viable option for these corporate enterprises when:
- Small investors are showing interest in their businesses and are willing to buy the shares,
- Other avenues to raise the capital like a commercial loan or venture capitalists are expensive, or
- There is a need to generate plenty of publicity.
How does an IPO work?
Private companies on the verge of launching an initial public offering need to understand that the process is time-consuming and expensive. The corporations should be willing to open financial records and internal operations to public scrutiny via regulatory authorities like US Securities and Exchange Commission (SEC). The corporate enterprises will also need to hire an investment bank to act as an underwriter. This banker will assume the responsibility to perform the bulk of the work to prepare the preliminary prospectus for the SEC. This phase is known as a “red herring.” Through lengthy discussions and many alterations, the red herring will lead to the adoption of the final prospectus (Form S-1). The SEC will accept the filing of this legal document to signal the launch of IPO.
According to Michael Saltzstein, launching an initial public offering signifies a new phase for private companies. The fundraiser enables these corporations to bankroll new projects, clear corporate debts, acquire new technology, and exploit lucrative opportunities. Moreover, the stakeholders of the corporate enterprises have the exit opportunity to earn millions of dollars for dedication in building the businesses. Above all, the companies get a lot of publicity and credibility from small investors from the launch.