Initial Public Offering (IPO)How does it work? Advantages Good to know
Are you planning to open up your company’s capital through a stock market launch (Initial Public Offering or IPO)? BNP Paribas Fortis will guide you at every step of the process and, more generally, through all transactions relating to your listed shares.
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.
- 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.