Regarding an IPO, what are different cost factors and how can those be measured?

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Regarding an IPO, what are different cost factors and how canthose be measured?

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Factors Affecting the Stock Value Price of a New IPO The procedure of offering the shares of the private company to the public itself for the first time is known as the IPOInitial Public Offering The growing organizations that are in requirements of the funds use the IPO for raising the money An initial public offering IPO refers to the process of offering shares of a private corporation to the public in a new stock issuance Public share issuance allows a company to raise capital from public investors The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes share premiums for current private investors Meanwhile it also allows public investors to participate in the offering A company planning an IPO will typically select an underwriter or underwriters They will also choose an exchange in which the shares will be issued and subsequently traded publicly The term initial public offering IPO has been a buzzword on Wall Street and among investors for decades The Dutch are credited with conducting the first modern IPO by offering shares of the Dutch East India Company to the general public Since then IPOs have been used as a way for companies to raise capital from public investors through the issuance of public share ownership Through the years IPOs have been known for uptrends and downtrends in issuance Individual sectors also experience uptrends and downtrends in issuance due to innovation and various other economic factors Tech IPOs multiplied at the height of the dotcom boom as startups without revenues rushed to list themselves on the stock market The 2008 financial crisis resulted in a year with the least number of IPOs After the recession following the 2008 financial crisis IPOs ground to a halt and for some years after new listings were rare More recently much of the IPO buzz has moved to a focus on the socalled unicornsstartup companies that have reached private valuations of more than 1 billion Understanding an IPO Prior to an IPO a company is considered private As a private company the business has grown with a relatively small number of shareholders including early investors like the founders family and friends along with professional investors such as venture capitalists or angel investors When a company reaches a stage in its growth process where it believes it is mature enough for the rigors of SEC regulations along with the benefits and responsibilities to public shareholders it will begin to advertise its interest in going public Typically this stage of growth will occur when a company has reached a private valuation of approximately 1 billion also known as unicorn status However private companies at various valuations with strong fundamentals and proven profitability potential can also qualify for an IPO depending on the market competition and their ability to meet listing requirements An IPO is a big step for a company It provides the company with access to raising a lot of money This gives the company a greater ability to grow and expand The increased transparency and share listing credibility can also be a factor in helping it obtain better terms when seeking borrowed funds as well IPO shares of a company are priced through underwriting due diligence When a company goes public the previously owned private share ownership converts to public ownership and the existing private shareholders shares become worth the public trading price Share underwriting can also include special provisions for private to public share ownership Generally the transition from private to public is a key time for private investors to cash in and earn the returns they were expecting Private shareholders may hold onto their shares in the public market or sell a portion or all of them for gains Meanwhile the public market opens up a huge opportunity for millions of investors to buy shares in the company and contribute capital to a companys shareholders equity The public consists of any individual or institutional investor who is interested in investing in the company Overall the number of shares the company sells and the price for which shares sell are the generating factors for the companys new shareholders equity value Shareholders equity still represents shares owned by investors when it is both private and public but with an IPO the shareholders equity increases significantly with cash from the primary issuance Largest IPOs Alibaba Group BABA in 2014 raising 25 billion American Insurance Group AIG in 2006 raising 205 billion VISA V in 2008 raising 197 billion General Motors GM in 2010 raising 1815 billion Facebook FB in 2012 raising 1601 billion Underwriters and the IPO Process An IPO comprehensively consists of two parts The first is the premarketing phase of the offering while the second is the initial public offering itself When a company is interested in an IPO it will advertise to underwriters by soliciting private bids or it can also make a public statement to generate interest The underwriters lead the IPO process and are chosen by the company A company may choose one or several underwriters to manage different parts of the IPO process collaboratively The underwriters are involved in every aspect of the IPO due diligence document preparation filing marketing and issuance Steps to an IPO include the following Underwriters present proposals and valuations discussing their services the best type of security to issue offering price amount of shares and estimated time frame for the market offering The company chooses its underwriters and formally agrees to underwriting terms through an underwriting agreement IPO teams are formed comprising underwriters lawyers certified public accountants and Securities and Exchange Commission experts Information regarding the company is compiled for required IPO documentation a The S1 Registration Statement is the primary IPO filing document It has two parts The prospectus and privately held filing information The S1 includes preliminary information about the expected date of the filing It will be revised often throughout the preIPO process The included prospectus is also revised continuously Marketing materials are created for premarketing of the new stock issuance a Underwriters and executives market the share issuance to estimate demand and establish a final offering price Underwriters can make revisions to their financial analysis throughout the marketing process This can include changing the IPO price or issuance date as they see fit b Companies take the necessary steps to meet specific public share offering requirements Companies must adhere to both exchange See Answer

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