Reasons Why Companies Release IPOsby Nirav Singhaniya Financial Advisor
Are you new to the world of trading and investment? If yes, then you must know what is IPO and the reasons why companies release IPOs?
Reasons why companies release IPOs
To Raise Money: The main aim of the IPO whether it is current or the latest IPO is to raise money (capital amount) for the concerned business. By making its IPO available to the general public, firms get direct access to a diverse and large group of people/investors for raising capital. This amount can be used for hiring additional staff members, creating facilities and building newer products. Often companies use the money to acquire other companies for business growth & expansion.
Build Credibility: To become a company that is publicly traded is viewed as a great achievement. It essentially indicates that the company has everything it requires to match rigorous governmental regulations. It helps the company in building credibility and find as well as keep larger customers.
Retain Skilled Employees and Management: The public firms get to attract as well as retain effective team management as well as skilled employees via liquid equity participation such as ESOPs. It allows a company to raise a huge amount of funds when compared to some of the other options. Another advantage of issuing an IPO is that it allows the firms to compensate their employees or executives via stock compensation. Employees are always interested in the stocks of the public company as they can sell the shares at their own convenience.
Increase Awareness among the Public: Yet another reason why companies choose to launch IPOs is that it helps them in increasing awareness about their business and offerings. Often, after the release of an IPO, there is a lot of buzz around the IPO. This is specifically true for renowned companies and even those organisations that are raising huge amounts of money through their IPO. This increased prestige and awareness helps the company in boosting sales and market share, enabling them to steer ahead of their competitors.
More Value for Shareholders: When a company has a large or strong market share, it is in a better position to create higher value for the shareholders when it chooses to go public, as compared to what it would have generated by being acquired by another company. This is primarily because any success that the company achieves in future will result in an increase in its stock price when it operates independently, while the price related to the acquisition is limited to the less attractive, low liquidity stock acquired during an acquisition.
Offer another IPO: Public companies can raise more capital money by offering another IPO since they already have access to public via their first IPO.
Expanding through Acquisition: Public companies that announce their IPOs are able to participate in merger & acquisitions and grow and expand their business. They help them in ascertaining the target acquisition’s value if the company has listed its shares publicly. Also, during such deals, the sellers prefer to take liquid securities and a stock that is publicly traded is considered to be one.
To sum up, public companies can use the capital generated through IPO for funding research & development, pay off their debts or for various other purposes that help them to grow and diversify further.
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Created on Jul 8th 2019 05:48. Viewed 329 times.