Share offer IPOs
What are share offer IPOs?
The Initial Public Offering (IPO) of shares is when the stock of a company is sold to the public on a recognised exchange such as the London Stock Exchange (LSE) for the very first time. By undergoing this process a private company will become a public company. A private company will normally go public to raise funds for further expansion or to allow pre-IPO investors the opportunity to monetise their investment.
Once available on exchange the company’s shares are freely traded and the value of each share can rise and fall in relation to the prevailing market forces.
There are many advantages to a company going public but the cost in doing so is relatively high and there are many further responsibilities enforced on the company by the exchange and the regulator primarily to protect investors. In order to go public the company will normally seek the assistance of an investment bank to underwrite the offer and the lengthy document known as the Prospectus will be produced providing investors with every detail the company’s performance, reasons for IPO and the offer itself. The investment bank will appoint 'distributors' such as Interactive Investor and gauge public demand for the offer, which in turn will allow them to set a suitable price range and programme of events leading up to the listing on exchange.
Why invest in share offer IPOs?
Many new issues attract sizeable interest from private investors who may be looking to take advantage of demand on the primary market, before the security is bought on the secondary market, with the hope that the value of the investment will rise. However, investors must be aware that investing in new issues is not without risk and the value of your investment may fall significantly after the security is quoted on the open market.
You’re getting in at the ground level, however, at this early stage the company will have no market track record and there may be relatively little data on which to base your investment decision. Furthermore the abundance of IPOs comes and goes in cycles, a strong equity market will generally lend itself to a surge in new IPOs due to perceived demand. It is always worthwhile gaining an understanding of what sectors are currently in favour and do your own analysis or seek independent professional advice before investing in IPOs.
Why invest in share offer IPOs with interactive investor?
You will not pay a purchase commission or stamp duty on any subscription through us. We may be paid a fee by the offer manager to cover our costs of advertising the offer, however this fee will not affect the number of shares you receive.
We also have a constant ear to the ground for any new issues that are coming to the market, so if you have an account with us we will keep you posted on any announcements of any companies going public.
How do share offer IPOs work?
There is a lot involved to bring a company to a stock market flotation but, from a potential investors’ point of view, this can happen very quickly. Knowing the general way IPOs work is therefore useful. IPOs are tightly regulated by the FCA to ensure transparency and fairness to investors and to meet their criteria. Every IPO consists of several stages:
- Intention to Float - The company officially announces its intention to float, which contains the highlights of the initial public offering proposal. Institutions and retail brokers will already have been invited to participate and be working behind the scenes to prepare the Offer for their customers.
- Price Range - The company announces an indicative share price announcement. This pricing decision is a complex one, but in part it will depend on the expectation of future earnings potential. The higher the potential future earnings, the more attractive the shares will be to buy. This is also why every company has a different initial share price.
- Prospectus released - The company will prepare and release a Prospectus, which investors should fully read and digest before making any decision to invest.
- Offer Period – From the point the Prospectus is released the Offer Period begins. This is the book building period when orders can be placed and may last only a few days or several weeks.
- Result of Issue – Usually within a couple of days of the Offer Period ending the Company announces the result including a finalised price. Applying for shares in an IPO does not give you any guarantee of receiving your desired number of shares. Over-demand may result in a smaller number of shares being allocated than were ordered.
- Admission – Once the allotment is finalised, your share allocation and the correct amount of cash will be exchanged for the shares at their final price and they will then be placed in your account ready for the first day of trading on the Exchange, which is known as Strike Day. Sometimes the trading of the new shares created from the IPO occurs in two parts; There may firstly be a period of conditional dealing for a few days, which has deferred settlement. Any trades during this period are still conditional on the security being listed on the Exchange and so can only settle once this has been achieved and trading becomes unconditional.