What is IPO investment?
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Have you ever heard of IPO investment? IPO is an acronym used to refer to the English term: Initial Public Offering, which in Portuguese means initial public offering.
This is also known as going public.
This type of operation has been on the rise in recent times. But before anything else, it is necessary to know what this concept means in practice.
To find out more, read on.
What is IPO investment?
IPO, as you already know, is the acronym for Initial Public Offering.
It is the process for a company to enter the Stock Exchange and sell their shares for the first time.
In other words, this name is given to the process of launching shares of a given company on the securities market.
Thus, it becomes a publicly traded company with shares traded on the stock exchange.
The objective, in this case, may be to raise financial resources (primary offering) or sell partner shares (secondary offerings).
Generally, companies that carry out an IPO are already at a more advanced stage of maturity. In Brazil, these operations are really significant, as they can reach hundreds of millions of reais.
Why do companies do IPOs?
For companies, the IPO is a relatively complex and expensive process.
This even requires a change in the management model, which will have to offer its own information to the market and deal with new shareholders.
So why do some of them decide to go public? Here are the main reasons:
1. Liquidity
Initiating an IPO represents a way of providing the company's partners with an opportunity to transfer their shares to other investors, transforming papers into cash.
2. Access to capital
Issuing shares is a way that companies have found to obtain capital to raise financial resources.
To become shareholders and participate in the results, investors must purchase shares.
Of course, there are other ways to raise funds to finance projects and increase the company’s expansion.
However, raising money through shares is a process that has several advantages.
Unlike financing, for example, shares do not have an expiration date.
Furthermore, the cost of issuing shares can be much more advantageous than that of bank financing and loans.
3. Image
The IPO process requires more transparency from companies.
Furthermore, when carrying out an IPO, a company must adapt its internal processes. This way, investors can have detailed access to what is happening within the company, deciding whether it is worth keeping the invested resources.
This makes the company more visible to the public and even the media, which certainly increases credibility.
How does the IPO process work?
For the IPO to happen, the interested company needs to go through a process that lasts about a year.
Most organizations designate one person from the team to be the project manager. The IPO team is then assembled, consisting of:
• Bankers
• Lawyers
• Accountants
• Experts from Securities and Exchange Commission (CVM)
Once the team is assembled, it is necessary to gather the required financial information.
This includes, for example, identifying, selling or disposing of non-performing assets, as well as looking for areas where cash flow can be increased.
There are also companies that choose to have a new board of directors to lead the new public company.
What are the types of IPO?
There are two types of Initial Public Offerings: Primary or Secondary Offering.
Learn more about each type:
Primary offer
New shares are issued on the market by the company to circulate on the market.
The company itself issues and sells the shares and the capital obtained returns to the cash flow, which can be used to expand the company.
Secondary offering
There are also secondary offerings of shares.
They occur when a partner decides to sell his share in the market, thus increasing the number of assets available on the stock exchange.
In other words, in the secondary offering, the shares are sold by the company's entrepreneurs or partners.
So, the money does not go to the company's cash register, but rather to the partner who is divesting his stake.
What are the main advantages of an IPO for organizations?
When a company decides to go public, it demonstrates that the business is promising and there are great possibilities for growth.
This means that the IPO can bring several benefits, such as:
Profit for owners
When the company enters stock exchange operations, the increase in fundraising is easily perceived.
This way, it can increase its profitability and expand organizational projects.
The moment shares go public, large percentages of the shares are sold, which brings significant profits.
Attracting qualified professionals
Another great advantage is the possibility of attracting specialist professionals with an innovative mindset.
A publicly traded company can offer professionals the opportunity to earn income through the acquisition of shares, opening up room for salary negotiation.
Accelerated growth
By becoming a publicly traded company, the business can obtain more resources to begin an expansion project.
In this way, the possibilities for growth become more real.
What are the disadvantages of IPO?
The IPO process also has its disadvantages, as we are talking about something expensive and complex.
Of course, in many situations, the advantages outweigh the disadvantages. However, companies need to know what the disadvantages are.
In addition to the process being bureaucratic, it is important to mention the lack of control of the company. In other words, the loss of control and ownership of the business by the owners.
Therefore, it is necessary to take this disadvantage into account before planning to go public on the stock exchange.
Conclusion
Now you know what an IPO is, why this process is carried out and what its main advantages are.
We hope this article has helped you better understand the subject and can further increase your interest in the Stock Exchange!
