Three Common and Valid Reasons for a company to go for an IPO - Initial Public Offering

 Three Common and Valid Reasons for a company to go for an IPO - Initial Public Offering

 

There are many reasons why a Company get listed in the Stock Exchange or Share Market through IPO(Initial Public Offering). Aside from the risk involved in the Unlisted Shares, As an Investor there is no need to buy a company immediately, where it comes for an IPO. It's like a mood of Euphoria and Herd Mentality.

But many of us think that if we buy something(Mostly Garbage of Stocks)  before it's getting listed in the Stock Exchange, we can make a lot of money once it's listed. This is where most of the Investors or Traders' mistakes occur.

 As we said that there are many reasons for a company gets listed in the Stock Exchange through the route of Initial Public Offering - so called IPO. Here are some of the common reasons,

• Exit Option: 

To provide an exit option for the existing investors of a Company. Mostly by Venture Capitalists, Ange Investors and Private Equity companies used this route to sell their shares in the Stock Exchange in the name of IPO. They may earn profits or in need of Cash, however it's not a suitable route to enter into the IPO as a New Investor.

• Debt Repayment:

Some companies have a Strong Brand, Customers and Large Product Portfolio. However they are struggling with their existing debt and unable to expand the business further. So that they can utilize the IPO to reduce their Debt burden. This would help them make as Debt Free and Strengthens the Financial Statements. Thus helps to getting more borrowed money on Banks and from the Public Equity.

• Raising Capital:

Wow ! There are some companies which may be Big or Small as an Entity, however they wants to raise a fund for their Business Expansion - Needy of Good Infrastructure, Develop and Launching new products, Compete in the Market or any type of growing like. Thus, need an investment for their Business, as they may not struggle with their existing Debt or no more of exit proceeding(Exit option) for their existing shareholders.

• And some more reasons...

1. Enhanced Liquidity
2. Branding in the Public Arena
3.  Credibility for better loans
4. Takeovers or Acquisitions
5. ESOP(Employee Stock Ownership Plan) 

 

 

 

 The First three valid reasons as we mentioned above are the most common and valid reasons for the most of the companies gets listed in the Stock Exchange.

Understanding this, if we invest in those companies(IPO), then we can know what those companies will return for us badly or in the Honor.  

 

 Kindly share your views / comments with a smile :)

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