An initial public offering (IPO) is when a private company decides to go public and sell shares to the public for the first time. The success of an IPO is typically measured by how well the stock performs after it starts trading on the public markets.
IPOs on the Australian Securities Exchange (ASX)
In Australia, most IPOs see company listed on the ASX which is the primary sharemarket in the country and most accessible by common investing platforms like CommSec, Stake, SelfWealth, SuperHero, Interactive Brokers, Tiger Brokers, CMC Markets, NAB Trade and many others.
What makes a successful IPO
A successful IPO is one in which the stock price rises significantly from its IPO Offer Price, and continues to perform well in the long term.
There are several factors that can contribute to the success of an IPO. One of the most important is the company’s financial performance. Companies with strong financials, such as high revenues, profits, and growth prospects, tend to do well in the public markets. The reputation and track record of the company’s management team also plays a role, as investors are more likely to have confidence in a company with a team that has a history of success.
Another important factor is the timing of the IPO. Companies that go public at the right time, when market conditions are favourable and investor sentiment is positive, tend to do better than those that go public during a downturn.
Assessing the IPO Offer Price
In addition, the pricing of the IPO is crucial for success. Pricing the IPO too high can lead to lackluster demand and a lower stock price, while pricing it too low can leave money on the table for the company’s early investors.
In some instances, IPOs are used as exit strategies for founders and early investors who invested in the company at a lower price than the IPO Offer Price, and then use the IPO as an opportunity to sell their shares for a profit without taking on the risk associated with business success or failure after listing on a sharemarket.
Is the IPO underwritten?
Lastly, a good underwriter (bank or other financial institution that helps a company with its IPO) can also play an important role in the success of the IPO. They can help ensure adequate demand for shares by brokering the buying of shares on behalf of their clients.
Changes in the Company after IPO
It is important to note that past performance is not guarantee of future performance and that the requirements of being a public company are vastly more expansive than being a private company. For this reason, an IPO often creates a large one-off expense to become a listed company, and also result in higher operating costs once they get listed on a sharemarket.
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