The term “Initial Public Offering” (IPO) is a time when an individual company makes available their shares for sale to investors in the very first instance, and allows investors to purchase shares in the business. The IPO plays a significant role in the world of finance by providing companies with the opportunity to raise capital, expand operations and establish credibility. Additionally they give investors the possibility to acquire shares in companies that are growing rapidly.
Importance of IPO
Capital Raising for Business Expansion
One of the main reasons why companies launch an IPO is to raise huge amounts of capital to help grow. The money raised from an IPO can be utilized for:
- Expansion of operations (e.g. the opening of new office spaces, or increasing capacity of production)
- Making investments in research and development (R&D) to spur the development of new ideas
- Repaying existing debts to increase the financial stability of the country.
- Acquisition of other companies to improve market position
Increased Credibility & Market Recognition
The public listing of a business improves its image in terms of transparency, transparency, and branding recognition. A publicly traded company has to provide financial information and details of its business operations, which helps build trust between investors, customers and other partners.
Example Alibaba’s IPO at the New York Stock Exchange (NYSE) increased its global brand presence, which helped it be competitive with Amazon.
Liquidity for Early Investors
Prior to an IPO an organization is privately owned by the founding members, investors from the beginning and employees who have stock options. A IPO allows them to trade their shares in the stock market and convert their investment into cash liquid.
Opportunity for Public Investors
IPOs enable institutional and retail investors to purchase shares of companies that are growing in its early stages. If the business performs well, IPO investors can earn huge profit.
Market Growth & Economic Impact
The strong IPO growth boosts stocks market and economic growth
- Attracting foreign direct investment (FDI)
- The creation of new job opportunities
- Encouragement of entrepreneurship and innovation
What Makes an IPO the “Biggest”?
There are many different IPOs are created equal. Some surpass records by raising billions of dollars and changing the financial market. The most significant IPOs have common elements that have contributed to their enormous size. Lets discuss about the factors that the make the IPO the biggest
High Amount of Capital Raised
The largest IPOs bring in hundreds of billions, which makes them important financial events. The magnitude of the IPO is determined by:
- The total amount of funds received (amount that investors invest in the business)
- Value of the company following the IPO
- Saudi Aramco’s IPO brought in $25.6 billion which is the biggest IPO ever.
- Here is the list of biggest IPO’s in India Till date. go though it to get clear picture of importance of IPO
Strong Industry & Market Demand
The company’s IPO success is contingent on the potential for growth in its industry and the market demand. The sectors of banking, technology, healthcare, and energy often have a high level of interest from investors.
Global Stock Exchange Listing
The exchange on which the IPO is listed influences the visibility of an IPO, its liquidity and the number of investors. There are four major stock exchanges: New York Stock Exchange (NYSE), Nasdaq, Hong Kong Stock Exchange (HKEX) along with the Shanghai Stock Exchange (SSE) are the most popular for mega-IPOs.
Strong Financial Performance & Future Growth
The largest IPOs are those of companies that have:
- Growth in profit and revenue
- A large customer base
- Innovative products and plans for global expansion
Government or Institutional Backing
A few of the largest IPOs include state-owned businesses or have the backing of institutional investors, which makes these more appealing to the general public.
Conclusion : Hope we have given about the importance of a company going into public and why it is mandatory for every company. Along with that we have listed out the essential factors that a company should fulfil to become the biggest in the history of IPO.