Initial Public Offering (IPO)

How does it work?

An Initial Public Offering (IPO) is the process through which a company offers its exchange-listed shares to the public (private or institutional investors) for the first time. They can be existing shares that are sold by a shareholder in the company, new shares issued especially for the occasion or a combination of the two.

• An IPO is useful when:
• A family business is looking for cash for its shareholders and/or to fund its growth;
• A company whose capital is held by private investors (Private Equity) wants to open up its capital;
• A company wants to sell a division or subsidiary (spin-off).
• Before considering an IPO, the company has to meet certain conditions:
• Established market position;
• Part of a growing sector;
• Proven track record and attractive prospects;
• Potential for a sufficiently large market capitalisation and liquidity.
• The parties involved in an IPO are:
• A syndicate of banks;
• Management of the company wishing to perform the IPO;
• Legal, accounting and communication experts.
• An Initial Public Offering is a complex operation that can take up to six months to complete.

Advantages

• Effective method for raising capital to fund an acquisition, strengthen your capital structure or invest in your core business.
• No impact on your business’s finances, but you will have to pay/provide a commission (fee), unlike when funding through a loan.
• No redemption at maturity, but your capital is diluted.
  
  

Good to know

• An IPO is deemed to be a success if the closing price at the end of the first trading day is higher than the launch price, and/or the issued shares have been readily sold.
• There are various risks associated with IPOs:
• Market risks: unfavourable market conditions can significantly affect the preparation of an Initial Public Offering;
• Execution risks: an IPO is a structured operation that takes time. Market fluctuations can slow the transaction down;
• Legal risks relating to the prospectus text.
• The costs of an IPO are expressed in the form of a commission (fee) representing a percentage of the transaction. The percentage varies according to the transaction and, more precisely, the number of shares issued.
• BNP Paribas Fortis has a great deal of experience in the field of IPOs and of equity capital markets (ECM) more generally. Don’t hesitate to consult your relationship manager.