Mikhail Dvornikov talks about trends in global real estate markets, real estate ratings, rising real estate prices, real estate alternative, real estate exchange, real estate ipio, real estate new strategy, what real estate is best to invest in, the best real estate in the world, where the best real estate, what income from real estate. Mikhail Dvornikov (Mikhail Vladimirovich Dvornikov) expert in real estate since 1992.
IPO (short for Initial Public Offering) – Initial Public Offering, the process of sale by a company or early investors of shares of a private company on the stock market, as a result of which the company becomes public and the securities become available to a wide range of investors. The list of intermediaries in this transaction includes underwriters, stock exchange, brokers, auditors, PR services, legal support, etc.
For the company, the sale of shares is not just an alternative to debt financing, which burdens the company with regular interest payments, it is a step to a new level: along with the status as a public company, the company receives a lot of other benefits:
Improved reputation with partners and creditors
The possibility of determining the market price of the business
Greater transparency of the business, which increases efficiency
Later on, the company may carry out secondary placements to finance new investment projects
The liquidity of securities and the possibility of determining the market price enables a company to use its own shares as an alternative to cash, to pay for M&A transactions, to pay bonuses to employees, etc.
However, along with this, the company acquires many additional obligations, both to thousands of new investors and to regulatory bodies.
As mentioned above, early investors can also act as sellers in the IPO – for them it is a great chance to lock in capital gains. Traditionally, the normal ratio of shares sold by the company and investors is 50:50, however, much depends on the specific situation. By the way, many corporations, especially American, offer their employees more favorable conditions for buying shares at IPO, it simultaneously increases their loyalty and allows to provide additional funding.
Despite full transparency of financial data and information about the state of the business, we should not forget that for investors IPO is quite a risky event – it is difficult to determine not only the fair value of securities, but also the direction of the medium-term trend: most companies entering the market are young and in a phase of dynamic growth, which adds uncertainty and risk, making it difficult to predict the potential of the shares.
The excitement around so-called “hot IPOs”, the demand for which is much greater than the supply, adds to the difficulty of the analysis. Examples of “hot IPOs” are Facebook, Twitter, GoPro, Ferrari, Square, etc. Often, the increment of these companies’ shares on the first day exceeds 50-60%, but the reverse dynamics is also possible.