IPO (Initial Public Offering)

An IPO, or Initial Public Offering, is a financial operation that seeks to sell a large package of shares of a company on the stock market.

Generally, an IPO responds to the manifest interest on the part of a large shareholder of a listed company or even a founding member of the same, to get totally or partially out of the capital of the firm. In most cases, your interest is to get rid of a shareholding package to diversify your assets or simply because you want to make your participation liquid.

The public sale process begins when the majority shareholders express a desire to sell a large package of securities. Although a public offer for sale is generally associated with the placement of shares, it can also be given through obligations, including promissory notes. The selling parties will have the obligation, with the help of the chosen financial entities, to present the brochure detailing the conditions of the IPO.

This documentation is verified and registered by the relevant regulatory body. In the case of Spain, the regulatory body is the CNMV, or the National Securities Market Commission. Through the corresponding financial entities, investors who wish to do so can access the IPO and get hold of part of those shares that the majority shareholder has wanted to make liquid. Although there is usually a section for qualified investors, there is usually a package for retail investors with the aim to make the stocks available to anyone.

Differences Between an IPO and a POS

There are several differences between an IPO and OPS (Public Subscription Offer). However, the most relevant of all is that in an OPS, investors acquire shares that did not exist before and that are issued through a capital increase. The main reason for a company to carry out an OPS is to raise new capital to finance new projects or acquisitions. In this case, the interests of the new and old shareholders are fully aligned while in the case of an IPO, the old owner is the counterpart of the new one.

Is it worth it to go to an IPO?

We must be clear at this point that when there is an IPO operation, it is because there is an interest of a relevant investor in totally or partially exiting that company. The objective of that investor is not always the same. Sometimes the IPO is carried out because the majority shareholder needs liquidity, because they want to diversify their assets or simply because they are no longer interested in having such an important stake in the company. What is common to all IPOs is that the shareholder who disposes of the participation in the company, will legitimately have the maximum interest in the price of the IPO being as high as possible.