Greetings! Increasingly, the mysterious abbreviation IPO flashes in the headlines next to news about oil. “Oil workers are breaking records with IPOs in order to survive,” “The first oil IPO in the last 10 years took place in Russia,” “ Saudi Arabia will reveal the volume of its oil reserves for the first time at an IPO”...

What's happening? What is an IPO and is it profitable to enter the stock market from the point of view of the investor and the issuing company?

The abbreviation IPO stands for Initial Public Offering. In simple terms, this means the first public offering of shares on an exchange where they can be purchased by a wide range of investors. In Russia, IPO also includes other types of public offering of securities (for example, secondary).

Why do companies go public? The main function of launching a public offering is obvious: by selling shares, the issuing company attracts additional finance. And from “closed” it automatically turns into “public”.

On the sec.gov website you can find detailed information about issuers with a description of the risks. By the way, before the IPO, the “world community” can only guess how well (or poorly) the company is doing.

IPIO allows the issuing company to solve dozens of problems in bulk. Looking ahead, I will say that entering the stock exchange involves a bunch of expensive and troublesome procedures. Why do companies resort to them?

Five advantages of an IPO

1. Firstly, by placing shares, long-term capital is attracted, which does not need to be returned. The issuer can use additional funds to purchase other companies, reduce the debt burden, modernize production or finance new projects
2. Secondly, only after going public does a company truly gain market capitalization. The exact price of a business increases the issuer's rating and gives it access to cheaper financial resources
3. Thirdly, an IPO improves the financial condition of the organization. Size equity increases due to the growth of share capital (sale of shares) and additional capital (share premium). In addition, on prestigious foreign exchanges, company shares can be used as collateral for obtaining loans. Or instead of money to pay for consulting services and encouragement of top and middle managers
4. Fourthly follows from the previous paragraph. Being a public company always improves the ratio borrowed money to your own. This allows you to attract borrowed capital at lower interest rates
5. Fifthly, this procedure increases the status of the company. From the point of view of counterparties, if shares are listed on the stock market, they are reliable business partners. This nuance is of particular importance for Russian issuers entering the Western market. In addition, high demand for shares usually entails the company’s transition to a qualitatively new level

Disadvantages of an IPO for the issuing company

There are few disadvantages to entering a wide market, but each of them is significant.

• A number of strict conditions and requirements must be met

For example, one of the serious limitations for entering an IPO is the size of the company. Small and medium-sized companies do not enter the Russian stock market due to low demand for their securities. And what prevents them from entering foreign sites is the capitalization threshold of $50 million. And only if the “price” of the company exceeds $1 billion, foreign pension, insurance and investment companies join in the investment.

• Preparing and conducting an IPO takes a lot of time and money

You will have to spend money on the services of an exchange, a registrar, a financial consultant, an underwriter, auditors, lawyers, as well as information support. Fixed expenses can reach $300,000 or more. Strictly speaking, an IPO is the most expensive way to raise funds from outside.

• Lost some control over the controls

After completion of the procedure, the company becomes public. Now its activities are constantly monitored by investors. The community will be closely monitoring everyone financial results and indicators. Management will have to regularly disclose information about activities and publish reports. If something doesn’t go according to plan, the market instantly reacts by dropping stock prices on the stock exchange. As a result, the organization's capitalization decreases and its image and reputation suffer.

New shareholders typically demand quick results. Therefore, managers often have to sacrifice some long-term projects in favor of short- and medium-term ones.

In general, after an IPO, a company has obligations that it can no longer refuse.

Stages of entering an IPO

I already wrote above that going public is a complex and troublesome procedure. In addition to the company and investors, the process involves the underwriter and the exchange, auditors and lawyers, PR agencies and investment banks.

Here are the approximate stages of preparing for the exit.

Preliminary

The business conducts a detailed analysis and audit of all types of activities. Aligns indicators and standards with market entry requirements.

Preparatory

At the second stage, the “foundation” is prepared:

• Selecting a trading platform and selecting a team
• Preparation of documents and calculations for investors (number and price of shares, amount of dividends)
• Launch of an advertising campaign.

Basic

Orders to purchase shares are generated and their value is determined. Where does the price of one share come from? The value of the company (calculated in advance using a bunch of indicators) is divided by the number of issued shares.

How does this happen? Approximately 10 days before the start of the IPO, the order book opens. Large investors indicate a preliminary number of shares to purchase. A price corridor is formed (for example, from $10 to $20 per share). Expected demand greatly influences the final price and quantity supplied. If preliminary demand for shares is high, the stated price may be higher than the upper limit of the price corridor and vice versa.

Example. Chinese logistics firm ZTO Express posted on New York on October 27 stock exchange shares priced at $19.5 per share. The previously announced price range was $16.5-18.5 per share. During the auction, the company raised $1.4 billion, which made this placement the largest in the United States for the entire outgoing year.

Final

The company enters the market, shares are put up for sale on the stock exchange. In the first days, their real price is formed. It can go up sharply or, conversely, fail to live up to expectations and go down.

Example. The developer of cloud solutions Nutanix entered the public market on September 30, 2016. Based on the results of the first trading session the company sold 29.5 million shares, and the security rose in price to $37 (+131.25% of the offering price). Those who bought shares in advance made good money. I will describe how this happens below.

Why is an IPO better than other ways to raise capital?

Of course, any business has other ways to attract additional funding. The most obvious option is to get a loan. But, unlike a loan, the capital raised during an IPO does not need to be regularly repaid, paid interest on it, or given anything as collateral.

The investor’s participation also gives him additional “trump cards”.

Diversification of investments

Buying different stocks is a great way to invest. Shares of companies in the same industry usually rise or fall in unison. Therefore, it makes sense to divide investments between at least three industries (for example, the oil and gas sector, IT technology and finance).

Long term orientation

Many financial assets in Russia are focused on short terms (high-yield bonds, bank deposits). Participation in an IPO allows you to invest for a long time and make full use of it.

Easier login

An IPO provides an opportunity to buy those shares that are practically unavailable to a private investor on the secondary market.

The disadvantages of an IPO for an investor come down to two points.

1. Firstly, . Over time, shares can rise or fall sharply in value.
2. Secondly, sooner or later the investor will have to get pretty nervous in the “loss zone”

Why don't all companies go public?

Carrying out an IPO is not profitable for everyone and not always. Over 20 years in the United States, the number of public companies has decreased from eight thousand to just four thousand. High-tech companies are in no hurry to go public. In 2016, only 14 companies from the IT sector went public (in 1999 there were 371).

Public company status is still extremely important for those working with large corporations and public sector. But some analysts believe that the IPO does not accelerate, but rather slows down the development of the issuer. After all, public companies are under constant pressure from investors and spend a lot of effort on bureaucratic procedures. As the saying goes, “you don’t have to go public to be successful.”

But the opposite also happens. The note-taking service Evernote was one of the first on the list of “unicorns” in 2012. For those who don’t know: “unicorns” are called market value more than $1 billion. In 2011, Evernote was recognized as “company of the year” by Inc. magazine. In 2014, the annual revenue of the “unicorn” was about $36 million. A year later, the audience exceeded 100 million people in 193 countries.

However, in 2016, the company sharply cut costs, abandoned bonuses, laid off 18% of employees and closed three out of ten offices. However, fix it financial situation Evernote management, oddly enough, is planning an IPO...

And one more big news from the “IPO world”. The world's largest oil reserves, production and export company is entering the stock market: Saudi Aramco(Saudi Arabia). For the Saudis, an IPO is a forced measure to cover budget deficit. The enterprise's capitalization could be about $2 trillion. And the whole world will finally know the exact size of Saudi Arabia's oil reserves.

This is all I have prepared for you today. Finally, I can recommend watching this cool webinar, which talks in detail about how huge amounts of money can be made on American IPOs if you buy shares BEFORE the public offering.

If you are interested in this idea and want to receive news about upcoming IPOs, company reviews and ways to participate in buying shares at the pre-IPO stage, you can subscribe to them on this page.

Have you, as an investor, ever enjoyed the benefits of buying shares? Subscribe to updates and share links to the latest posts with your friends on social networks!

If a person has ever been even slightly interested in trading in financial markets, then he has probably heard 3 magic letters - IPO.

What is an IPO in simple words

IPO (from English Initial Public Offering) in simple words- This is an initial public offering of shares on the stock exchange, a process that provides for the free sale of part of the corporation’s securities to everyone.

IPO(I-P-O) is when shares go on the stock exchange for the first time and investors buy shares not from other shareholders, but from the company itself. Next, investors will buy shares from each other, this is called the secondary market.

Typically, an IPO, or public offering of shares, represents a very important milestone in the life of a company. In fact, this is her recognition at the level of serious investment projects. Accordingly, the issuer's management approaches this step responsibly, stirring up investor interest in its brainchild. Various PR campaigns are carried out and the release dates of new long-awaited products are shifted, so as to attract even greater attention from everyone around.

To more clearly understand what an IPO is, watch this short and fascinating video:

What is People's IPO

The meaning of the term " people's IPO» is somewhat different from a regular IPO. The main differences are that the target category of investors in this case are individuals, that is, ordinary people, often employees of the company, and most importantly, not foreign investors.

In this case, the company also assumes a certain social responsibility for its investors, which is repeatedly mentioned in placement promotions. Roughly speaking, the company openly states: put your money in our shares, we will do everything to prevent you from losing it.

In fact, these promises are not legally backed up and, as a rule, are not fulfilled to any significant extent. An example is the involvement of “people’s” shareholders in the purchase of bank securities VTB.

In 2007, a wide range of bank employees, budgetary institutions and employees were offered the opportunity to buy VTB shares. Of course, anyone could do this, but the main emphasis was on ordinary people who have any savings. The sale of shares took place at a price of 13.5 kopecks per share, and investors received the promised shares, which immediately rushed down. In 2009, the price stabilized at 2 kopecks. Thus, “popular” investors lost more than 70% of their capital. Repeatedly, the owners of securities turned to the bank management with a demand to carry out a buyback and buy back unprofitable assets. However, VTB top managers were in no hurry to part with depositors’ money. Only 5 years later, in 2012, after the request of Prime Minister Vladimir Putin, the bank initiated the buyout procedure. By the end of the year, 75 thousand applications were registered, amounting to more than 11 billion rubles.

There are more favorable outcomes of “popular” placement. Take for example a public offering of a company. Tesla on NASDAQ. Investors could purchase shares of the innovative giant at a price $17 per share in 2010. Seven years later, in 2017, the shares were already worth more $350 . Agree, such an increase ( 20 times) can satisfy the needs of the most greedy investor.

The flag matters

It is worth noting that domestic companies First of all, they strive to place their securities not on Russian exchanges, but on foreign ones, in order to receive funds in dollars or euros, and not rubles. In general, the history of foreign markets, particularly the American and European markets, boasts a large number of successful IPOs.

One can, of course, complain about the long history of these financial platforms. But one cannot deny the fact that developing countries represent a rather complex market, full of economic and political risks. Therefore, it is important to monitor exactly where a particular company participating in an IPO is doing business.

Traditionally, the most favorable countries for running a sustainable business are the western countries: the USA and the EU. Or transnational companies that cover the whole world, but have headquarters in leading countries.

How does an initial public offering take place?

Let us examine in more detail the stages of preparation for placement.

The company itself rarely offers its securities directly, because most private investors use the services of brokers who have special licenses to work on the stock exchange. If you dive even deeper into the kitchen financial transactions, then it is worth highlighting special banks - underwriters, who act as intermediaries and first of all buy shares from the issuer, and only then provide them to brokers.

The term itself underwriting» ( from English underwritten - subscriber) is used in the financial world in several concepts.

• In insurance, Underwriting means assessing the possible losses of an insurance company, and an underwriter is a person who manages the risks of the insurance portfolio.

In securities trading The underwriter is the bank that distributes the shares of the IPO firm. Typically, a company recruits several banks at once - underwriters, which form a syndicate. In this case, one bank is appointed as the manager of the syndicate and essentially fulfills coordination obligations by directly distributing securities among future investors.

This entire structure is in fact intermediaries between sellers (represented by the company) and buyers (represented by investors). Once all the roles are defined and the underwriters have contacted the brokers, the actual transaction process begins.

It looks something like this– managers of brokerage firms monitor the list of upcoming IPOs and prepare prospectuses for each issuer. Then they specifically offer the opportunity to participate in the initial public offering of a particular company to their clients. It happens that a company planning an IPO, through its underwriters, cooperates only with several brokers, selecting them, for example, by the amount of capital.

If you decide to finance the placement of an issuer, then first of all you need to check with your broker to see if he provides access to the IPO of the corporation that interests you. If the answer is negative, then you should look for another broker.

Subtleties of placement

Let's take a closer look at the IPO process and try to figure out how we can make money from it?

To begin with, it is worth saying that the process of selling shares of a company, in simple words, is essentially the sale of part of the business. But who wants to sell the goose that lays the golden eggs? That's right, no one. Therein lies the catch. As a rule, company owners want to sell part of their business at the peak of its value in order to earn as much as possible. What happens to an asset that is at its maximum? He starts to fall.

Of course, it is not at all necessary that such a story awaits the shares of all companies after the IPO. Some issuers offer such innovative products and business methods that the upward trend of their assets continues even after the initial offering.

However, it is worth keeping in mind that at an IPO they want to sell you shares as expensive as possible and make money from it.

Another positive nuance can be considered the saturation of the issuer with free funds ( from the sale of shares, which are securities), which he can theoretically use for further business development, which will ultimately lead to an increase in the value of quotes.

But you need to understand that this will not happen today or tomorrow, but over several investment horizons.

For fast speculative trading, other liquid instruments offered by the stock market are much more suitable.

It is important to understand the principle of investment in an initial public offering. This is no trade" on bids”, but a full-fledged investment of funds with a powerful reserve for the future, or moderate swing trading. You also need to decide what kind of movement you should expect from the asset. If we are talking about a sharp speculative rise in price against a news background, then it makes sense to be ready to close positions in time and get into the money.

By the way, IPOs do not always happen successfully. Many large companies, such as Apple and IBM, going through the stages of their formation, postponed their sales start dates for a number of reasons.

Most often, little-known companies have difficulty finding buyers for their assets. This issue arises especially acutely when there is a lack of advertising and a narrow specialization of business. All this results in a banal lack of buyers at the underwriting stage and ultimately comes down to a postponement of the IPO date.

Among other things, the transfer may well be affected by poor reporting or litigation by the issuer. As mentioned above, an initial public offering is a process in which the company must appear squeaky clean in order to attract the attention of large funds.

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How to make money on IPO

What is an IPO for the average trader? Of course it's a way to make money. There are general recommendations regarding investor behavior in an initial public offering.

Firstly, it is worth conducting an in-depth analysis of the issuer’s financial statements. Assess risks, especially bankruptcy. Check your results against the grades rating agencies (Standard & Poor’s, Moody’s, Fitch Ratings are perfect). In addition, you yourself must clearly understand what to expect from this business. For the value of the issuer's securities to grow in the future, it must be a truly promising and innovative business. In simple words, between a telegraph agency and space technologies, preference should be given to space technologies

Secondly, no one forbade using the most important rule of a trader - if you don’t know what to do, don’t do anything. If you are not sure of 100% growth after the IPO, you should wait a little.

There are only two development options - the shares will either fall or rise after placement.

In the first case, this is an excellent time to enter the market with a good discount, buying shares much cheaper than all those who purchased them at the IPO through underwriters. In the second, you should not try to catch up with the departing train. In any growing trend, sooner or later a temporary course correction will appear, when it will be possible to freely enter a position not at the highs.

As an example, we can cite the same Tesla, which formed an upward trend over 7 years, in which there were significant corrections, from $25 to $17, then from $75; up to $50 and so on. These movements are visible on the price chart with the naked eye.

Third, don't be greedy. Trees don't grow to the sky, so even if your bet is successful, don't wait too long before closing your position.

It must be remembered that returns of 20-30% per year are considered breathtaking for most institutional investors, and the stock exchange provides this opportunity through IPOs.

Fixing even part of the income in such a situation will have a very positive impact on the final result of the investment.

By following these rules, you can not only save your deposit from loss, but also make a significant profit, because the main thing in trading is to strictly follow a proven plan.

If you find an error, please highlight a piece of text and click Ctrl+Enter.

The IPO market is a securities market, a stock market. Its condition depends on the number of shares of issuers and the amount of demand for them. The more shares and higher demand, the better for the market.

IPO is a method of corporatization in which the issuer's securities become available to a wide audience for the first time.

The terms “initial offering” or “public offering” are also used.

According to many experts, participation in an IPO carries certain risks. Thus, an investor never knows how a company's shares will behave in the near future. He does not have sufficient information, since the issuer does not have an “exchange” history. Also, IPOs are often launched, inspired by fleeting success. This creates additional tension among potential shareholders.

In this case, the interpretation of the abbreviation IPO is appropriate - “It"s Probably Overpriced." Opponents of this approach argue that IPO is "Immediate Profit Opportunities", i.e. "an opportunity to make money quickly."

IPO price

Both young start-ups can be located to attract funds and investors, as well as industry monsters who want to strengthen their positions.

In the first case, the company sells its newly issued shares (Primary Public Offering), in the second it sells previously issued securities (Secondary Public Offering).

Another case that sometimes occurs in practice is the so-called “additional placement”. Additional issue of shares in the case when they are already traded on the stock exchange.

One way or another, third-party underwriting companies are attracted to enter the IPO. They help collect all the necessary documents, choose trading platform and placement price.

The full list of parties involved in entering the exchange looks like this:

1. Issuing company
2. Underwriter;
3. Auditors;
4. Investment Bank;
5. Law office;
6. Consultants;
7. PR people.

They are responsible for the following processes:

1. Due diligence of the issuer;
2. Audit;
3. Legal examination of business;
4. Business valuation;
5. Assessment of technologies and personnel;
6. Prospectus preparation;
7. Marketing activity analysis;
8. Examination of transactions concluded during IPOs.

Another must-see event is the Road Show. After this, the company's shares are listed on the stock exchange. The reverse procedure to listing is called delisting.

Exit to IPO

The IPO price is determined by the underwriters.

Pricing in this case depends on large quantity factors. They can be combined into 2 large groups:

1. External ( general state market, competitors' activities, buyer behavior);
2. Internal ( financial indicators, quality of products and services provided, reputation, etc.)

People's IPO (ipio)

Folk ipo (ipio) is the same as the “classic” one, but with a slight difference. Shares of such placement are intended primarily for the population of the country where the issuer operates. Often such an initial placement is arranged by a state-owned company.

It is no secret that the people's IPO serves the purpose of privatization, which in turn is needed to replenish the budget.

A classic example of a people's IPO is the sale of government assets in the UK in the 80s and 90s. Residents of the kingdom could purchase securities of national companies British Gas, British Steel, Rolls Royce, etc.

In the course of its life, a private company may decide to become public and offer its shares to a wide range of investors, i.e. conduct the so-called (Initial Public Offering). As a result of this process, the company attracts cash investors and has the opportunity to direct them to its further development, and investors receive shares of the company, expecting an increase in its profits and growth. Such a process is also called an issue, and the company is called the issuer.

Since the IPO shares companies begin to trade on the stock exchange, where any trading participant - a client of a brokerage company - can purchase securities into their brokerage account. Thus, we can say that the liquidity of the company increases multiple times, and therefore the value of its shares also increases. And this is where private investors have a question: how can they purchase shares before the IPO and then make money by selling them at an increased price when the company becomes public.

Basic requirements for placement of shares

It is worth noting that an IPO can be carried out by an open joint-stock company, since a closed joint-stock company legally cannot take and sell part of its shares to third-party investors. If the company is not at all joint stock company, then in principle there can be no talk of holding an IPO - with such an organizational and legal form of doing business, the issue of securities is not carried out. Thus, in order to conduct an IPO, the company must undergo a reorganization procedure and become a joint stock company, which implies the possibility of acquiring its shares by third parties.

It is worth recalling here that the securities market can be divided into an exchange market (an organized market in which transactions in securities occur at exchange trading according to clearly formulated rules) and an over-the-counter market (essentially, a market for private transactions of counterparties). And investors who want to buy shares of the company can try to purchase them from the current owners privately - under a purchase and sale agreement with the execution of an act of acceptance and transfer of securities and the making of a corresponding entry about the new owner in the depository. But calling this procedure simple is problematic. Current shareholders may not want to sell their stakes; the liquidity of such transactions is extremely low, plus the transaction may have various complications. Although, of course, in the event of a subsequent IPO by the company, the value of shares purchased in this way may increase multiple times and selling them will be simple - just credit these shares to a brokerage account and sell them at stock exchange trading.

In addition to the organizational and legal form, a company wishing to conduct an IPO must begin publishing reports in accordance with IFRS (international financial reporting standards) and undergo audit, and also be prepared for information openness, which in most cases scares away representatives of Russian business from conducting an IPO.

IPO stages

The IPO process can be divided into three stages: preparation, execution and subsequent support. An IPO is a very lengthy and expensive procedure that can take up to a year. A company that has decided to become public does not organize its IPO on its own, but invites representatives of investment banking divisions, the so-called underwriters, who will help carry out this procedure for a commission (which can be paid not only in money, but also in shares - the form of payment is negotiated separately) . The IPO preparation stage begins with this action. Next, the underwriters' consultants help the company create an investment memorandum, which specifies the share of securities for public sale, the type of shares, biographies of management, its current shareholders, the expected date of the IPO, and also attaches financial statements ( verified third party auditor). And this document is registered with the supervisory authority - the Bank of Russia.

Then the most interesting part begins - the second stage. The fact is that you need to find buyers for the block of shares being sold. The so-called begins Road Show, in which the company and underwriters organize meetings with investors, including large ones investment funds- potential buyers of shares. During these meetings, company representatives talk about the development potential and prospects of the company, trying to interest potential buyers. Moreover, the company is trying to find an anchor investor, i.e. an investor who expresses a desire to acquire a large block of shares being placed. In the form of meetings of this kind, certainty appears regarding the sale of shares at the upcoming IPO.

The company then selects an exchange to list and organize subsequent trading of shares. Moreover Russian companies can be placed not only on the Moscow Exchange, but also on foreign exchanges. Thus, many Russian companies carried out IPOs on the London Stock Exchange and other famous world exchanges, for example, NYSE NASDAQ, but conducting such IPOs is a very expensive procedure and only really large companies can carry it out. Moreover, underwriters can also buy shares of the company being placed before the IPO at lower prices. It is possible to leave your application to purchase shares from the underwriter carrying out the placement process.

Next comes the IPO itself, during which the company sells its shares to investors on the selected exchange platform. Moreover, investors who purchased during an IPO are often subject to a rule prohibiting the sale of shares for a certain period (often this period is 90 days). After the placement of shares, their liquidity increases, as a result of which the price may increase. And the company received cash for the sold shares, which it can use for further expansion of the industry, which is again positive for the value of its shares. And after the IPO, the support stage begins, within which the underwriters can invite the now public company to consider taking measures to include shares in stock indices, which, in turn, can increase the circle of investors for both additional issues and bonds.

Thus, we can say that purchasing shares before an IPO can be a very profitable investment, but it can be done either in the over-the-counter market or through IPO underwriters.

Conclusion

Buying shares before an IPO is a potentially profitable investment, but carries a certain risk. To minimize it, you should carefully study the company’s reporting and weigh its prospects, as well as ask for advice from market professionals and employees brokerage companies involved in compiling investment portfolios and analyzing companies. It is worth remembering that the best professionals in this area, as a rule, work in large companies.

The success that awaits a company when its status changes from private to public no longer needs proof - presenting the company's shares on the largest exchanges in the world is not only prestigious, but also profitable.

However hold an IPO not so simple - the process is long and labor-intensive.

What is an IPO — definition and essence of the process

Initial Public Offering (IPO) – an offer by an organization of its shares to the public. Thus, anyone can become a shareholder of the company. When a company enters an IPO, the requirements imposed on it by regulatory authorities fundamentally change. Procedure IPO begins with the initial public offering. This procedure lasts from several months to a year.

The main purpose of an IPO is

– attracting third-party funds that can be effectively used as investments or for business development. The shares, in turn, will cover part of the costs of concluding transactions. Besides, exit to IPO makes it possible to recruit highly qualified specialists into the company’s staff. And finally, the company gets the opportunity to be included in the list of the world's largest exchanges, which significantly increases its prestige.

Roughly speaking, IP allows you to sell company shares on the stock exchange, where anyone can buy them. At the very beginning, the so-called primary market takes place, when the company’s shares are sold directly, that is, the company itself is the seller. At the time of the IPO, shares sell like hotcakes, and when they end, the investors themselves will act as sellers of the shares, this is called the secondary market.

At the first stage, the company makes a profit from the sale of shares, often amounts amounting to hundreds, millions and billions of dollars. Further, the company can buy back its own shares from the secondary market, wait until the price of the securities rises and sell them again. An IPO is the first public offering, the procedure of which requires the company to take certain actions, for example, the company must now publicly publish financial statements, quarterly reports and other data, have an investor relations department, and so on.

Watch an interesting video about what an IPO is and what its essence is:

Examples of IPOs

In 2007, a “people’s” IPO took place Russian bank VTB. It was one of the biggest events for banking system in Russia, on that day the bank's capital increased by $8 billion. Initially, the shares were offered at a price of 13.6 kopecks, but in just a year the shares fell to three kopecks, and are still trading at half the price originally offered.

You can read in more detail what happened to the shareholders in the article about.

The well-known company Facebook held an IPO in May 2012 at a price per share of $38. The company earned $16 billion from this, but by August the price of their shares had fallen by half. True, from that moment they began to grow steadily:

IPO release in Russia

IPO in Russia has its own characteristics. As practice shows, our companies are not particularly active in the domestic market, preferring to conduct operations abroad. Anyway, lately IPO of Russian companies began to take place on the Moscow stock exchange, which can be called a positive trend.

According to S. Yegishyants, who holds the post of chief economist at ITinvest, the reason for this is clear - fixed capital is still located abroad.

The IPO market, for example, is very developed in China due to the good health of the local financial market.

At the same time, placing an IPO on Russian sites is a rather rare phenomenon. IPO rules in our country are quite serious, while the market is underdeveloped, and a significant part of the assets owned by large businessmen, in turn, is stored in foreign banks. All this leads to the fact that organizing an IPO in Russia does not arouse any enthusiasm among companies.

Currently in Russia there are about two hundred closed companies with a cash turnover of approximately $500 million each. All of them are capable of going public.

Experts say that the number of issued bonds has increased by about half over the past few years. At the same time, about 40% of shares issued to the stock exchange by domestic companies were carried out on Russian sites.

Recently, Russian enterprises have become interested in exchanges located in our country. Experts believe that the domestic IPO has positive development dynamics and large resources for growth. But in the long term, the share of placements on sites in other countries is also expected to grow.

What is a people's IPO?

It is worth clarifying what a People's IPO is; it is somewhat different from the classic one. Securities such placements are calculated on a national scale and are necessary for the population where the issuer operates. The people's IPO works for privatization, which is needed to strengthen the budget. In Russia, such IPOs are more often carried out by state-owned companies.

One example is the sale of government assets in England; in the 80-90s, only English citizens could buy shares of several large national companies - British Gas, Rolls Royce, British Steel and several more.

Public fundraising is an investment in the future of any enterprise. To conduct a successful transaction, it is necessary to clearly define and communicate to market participants the company's goals, objectives and strategy. Sometimes businesses try their best to achieve quick results by establishing themselves in the market. But only proper management the desires of investors can allow enterprises to implement long-term programs.

IPO organization

Initial Public Offering - IPO Begins with Hiring investment bank (underwriter). Despite the fact that in theory the company can sell shares on its own, this opportunity has not been implemented in practice. The agreement between the bank and the company provides for such key aspects of the transaction as the type of share price, as well as the amount of funds raised.

After its conclusion, the underwriter must submit the investment memorandum to the regulatory authority. Russian IPO controlled by the Bank of Russia. The memorandum contains information about the management and shareholders of the company that decided to enter into an IPO, financial statements, information about the current problems of the company, the purpose of raising funds. After checking the data, the IPO date is set.

Benefits of investment banks

Underwriters make a profit on the difference between the price of shares before the IPO and the price established at the beginning of trading. The opportunity to earn money through cooperation with a promising company creates serious competition between potential underwriters.

They usually conduct a presentation of a company that has decided to conduct an IPO in order to attract the most promising investors, while the latter have the opportunity to become shareholders even before the auction is announced ( this process is called allocation).

The price of shares is determined by the organization going public and investment bank shortly before the IPO date. The price depends on various factors - starting with the situation on financial market to the prospects of the company itself. At this time, serious competition arises between exchanges fighting for the right to place serious companies on their listing.

After an IPO, shares become available to private investors only after the official start of trading, that is, upon the opening of the exchange in the morning. However, it is not worth purchasing them in the first days - it would be wiser to wait for prices to stabilize, although often shares after an IPO tend to rise up to 300%, but after a sharp increase they may fall to their original value. It is this unpredictability that adds risk.

IPO stages

1. Regulating the activities of the company. Preparations for an IPO should begin as early as possible. Approximately four years should pass from the decision on placement to the start of trading. Before the start of direct placement, it is necessary to establish transparency in the legal structure of the company, improve the quality of management, obtain a positive reputation of the borrower, and increase brand awareness in the market.
2. Entry of the enterprise to the market. A year before the planned date, the company needs to decide with the underwriter. In this case, a tender is held, sometimes the organizer of the issue becomes a bank that has common projects with the enterprise. Reviewed together with the underwriter possible options exchange platforms, expected placement prices, size of shares. Preparing to enter the market takes about four to six months, after which the IPO is carried out.
3. Waiting for the right moment. The main factors influencing placement include the firm's readiness to implement the project and market conditions. For example, there is no need to rush if a large number of other companies are expected to make initial public offerings within one week. Each exchange has unfavorable periods: Christmas in America and Europe, the holiday period in the summer. It must be remembered that even in this case, market conditions may change under the influence of any factors, so the secret of the success of the IPO will be kept until the end of its implementation.
4. Period of work with investors. Financial experts say: the IPO only begins after the initial public offering. Maintaining the company's website, publishing reports, and working with investors require a lot of attention. At the same time, you should fight against deceivers and be prepared for a general market decline.

Financial experts predict a good future for Russian IPOs. Why then do domestic companies give preference to conducting IPOs on foreign exchanges? The answer lies on the surface: all capital is in the West, which is why corporations from all over the world place shares there.

IPOs in the People's Republic of China are becoming increasingly popular - the local capital market has grown, and many people want to attract Chinese funds. Investors are in no hurry to locate on Russian sites due to the protection of property rights and the market’s too small capacity. A significant portion of idle assets owned by businessmen and politiciansplaced not on the account of state banks, but in foreign offshore companies and funds. Under these conditions, one can understand the behavior of Russian companies looking for locations abroad. In addition, for many Russian enterprises with foreign capital, participation in an IPO is a priority requirement of shareholders seeking to increase profits and minimize possible risks.

Video: IPO procedure

Pros and cons of IPO

The decision to conduct an IPO indicates that the company is growing steadily and is ready to move to a new level. By becoming public, a company can count on an influx of qualified employees and an increase in business reputation.

Placing shares on the stock exchange is one of the main instruments for financing and improving an enterprise. Attracting new material wealth during an IPO allows the company to obtain the funds it needs for expansion. The system allows you to find the most profitable sources of capital and reduces the cost of attracted subsidies. An IPO allows you to open up new opportunities in the business world, helps optimize your capital structure and gain additional access to stock market, including foreign ones.

However, an IPO also has its downsides.

Firstly, the IPO requirements for such a company are becoming more stringent, and control over them, including financial, is strengthening. The downside of the system is the increased attention after “release” from regulatory authorities. There are a huge number of rules put forward by the state and exchange platforms that any company must adhere to.

Secondly, only the largest IPOs - the most famous and fastest growing companies - can count on quick profits.

Another drawback– a company is not always able to sell its shares and make money after an IPO due to a decrease in their price and business capitalization. Due to the issuer’s lack of stock exchange history, an investor cannot predict how the company’s shares will behave in the future, and therefore participation in an IPO is risky in almost all cases.

Lastly, the cost of an IPO is quite high.

To summarize, we can say that holding an IPO is a popular procedure in modern conditions necessary. Not every company can decide to take this step, but the benefits if the company becomes a public company are obvious. It is obvious that IPOs will become widespread in Russia; all that is needed is legislative support for medium and large businesses.

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