What is IPO primary and secondary offering and how does it work?
Find out what it is, how it works and the difference between an IPO, primary and secondary offering!
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Have you ever heard of primary and secondary IPOs? One of the most closely followed financial events by experienced investors is IPOs.
This offering represents a company's debut on the Stock Exchange.
And if you want to know what this is and what the difference is between primary and secondary IPO, keep reading. We'll explain how it all works!
What is IPO?
IPO is the acronym in English for “Initial Public Offering”, or “Initial Public Offering” in Portuguese.
Basically, it is the process by which a company offers shares to the market for the first time. Thus, it becomes a publicly traded company, with shares traded on the stock exchange.
In this way, investors can acquire shares in the company and participate in the profits when they are distributed.
The company in question no longer belongs to a single group or owner and now has anonymous partners.
Why do companies do IPOs?
An IPO is an expensive and often complex process.
However, there are several reasons why many companies choose to go public. Some of them include:
Access to capital
Issuing shares is a way to raise financial resources.
In an IPO, the company usually raises large sums of money.
To become shareholders and, consequently, participate in the company's results, shareholders need to acquire shares.
These values, in general, finance investments so that the company can grow and develop new projects.
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When a company goes public, it needs to rethink its internal processes and be even more transparent regarding operations and results.
After all, investors have the right to know everything that is happening, so that they can decide whether to keep their resources invested.
This makes the company gain more credibility in the market, since a publicly-held company has a higher degree of corporate governance.
It is important to remember that although the IPO is a well-known way of generating resources for companies, it is not the only one.
It is also possible to obtain resources in other ways, such as loans and financing from banks or debentures (debt securities issued by publicly traded companies on the stock exchange).
IPO primary and secondary offering: what are the types?
An IPO can be primary or secondary.
Primary offerings represent the sale of new shares issued by companies on the market.
It occurs when the company aims to gain new shareholders by issuing new shares.
The resources obtained through this type of operation go to the company's cash flow, which increases the share capital.
This makes it possible to expand the business.
Secondary offerings, on the other hand, represent the sale of shares that already existed. In this case, the company puts up for sale the shares of partners who have decided to reduce their stake in the business.
How to participate in an IPO primary and secondary offering?
Now that you know what a primary and secondary IPO is and why an “Initial Public Offering” can be advantageous for investors, you may be interested in participating in an IPO. If this is your case, here is a step-by-step guide to doing so:
1. Open an account with a broker
The first thing you should do is open your account at a stockbroker, which are the companies that mediate business on the stock exchange.
Furthermore, brokerage firms are also responsible for distributing the securities sold during IPOs.
2. Choose a company
This step is extremely important.
Here, you will evaluate the organization's history and financial statements to see if you are making a good deal.
Get all the information you can about the company and analyze its prospects.
To find out which companies are going public, you can check the websites of CVM, B3, or the brokerage firm where you opened an account.
3. Reserve the shares
It is during this period that investors inform the broker how many shares they want to buy or how much they want to invest.
The reservation occurs before the company goes public. This is because when purchasing shares on the eve of the IPO, the value is usually lower than on the first trading session.
However, there are more risks involved, as the company's shares have never been traded.
Pay close attention to this step, because once you make your reservations, you cannot go back.
To guarantee your participation, you must pay a portion of the value of the shares.
4. Make the payment
The share pricing process is carried out after evaluating the initial price and demand for the securities being traded.
When the bookbuilding process is completed, you will receive information about the value of the shares and the exact number of them that you can purchase.
To make the payment, transfer the funds to your brokerage account.
5. Start of the company's operations on the Stock Exchange
The shares will begin trading on the B3 trading floor.
Also, at this time, the stock price may increase or decrease.
It is important to remember that to be a successful investor, it is not enough to just buy shares. You need to monitor the performance of the shares and the performance of the company.
Is it worth investing in an IPO?
In an initial public offering, the company opens its capital for the first time.
This could be a good opportunity to invest in a business with growth potential.
Furthermore, when a company debuts on the stock exchange, its shares are usually sold at a lower price than expected. On the day of the debut and in the following weeks, the assets tend to appreciate in value.
But since we are talking about variable income, that is, prices fluctuate constantly, it is not possible to know exactly what the profitability will be.
For this reason, if you want to participate in an IPO, you need to understand the characteristics of the company and read the Issuance Prospectus, or Preliminary Prospectus, which contains a lot of important information.
Conclusion
There are differences between primary and secondary IPO.
Before making this investment, it is very important that you know your investor profile, the company's characteristics and its plans.
Also, remember the importance of diversifying your portfolio and thus diluting risks.
