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IPO

IPO

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Published by vj_gupta9

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Published by: vj_gupta9 on Mar 12, 2009
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03/12/2014

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Table of contents
Serial No.ParticularsPage No.
1. IPO An Introduction72.Significance of IPO93.Analyzing an IPO investment 144.IPO Investment Strategies165.Pricing of an IPO186.Principal steps in an IPO207. Book-building Process248. Case study: Hughes Software Solutions319.Case study: HDIL IPO Valuation3410.Past IPO Performance5011.IPO Glossary5212.Bibliography56
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INITIAL PUBLIC OFFERING (IPO)
The first public offering of equity shares or convertible securities by a company, which isfollowed by the listing of a company’s shares on a stock exchange, is known as an ‘
InitialPublic Offering
’. In other words, it refers to the first sale of a company’s common shares toinvestors on a public stock exchange, with an intention to raise new capital.The most important objective of an IPO is to
raise capital 
for the company. It helps a companyto tap a wide range of investors who would provide large volumes of capital to the company for future growth and development. A company going for an IPO stands to make a lot of moneyfrom the sale of its shares which it tries to anticipate how to use for further expansion anddevelopment. The company is not required to repay the capital and the new shareholders get aright to future profits distributed by the company.
Companies fall into two broad categories: Private and Public
.
A privately held company has fewer shareholders and its owners don't have to disclose muchinformation about the company. When a privately held corporation needs additional capital, itcan borrow cash or sell stock to raise needed funds. Often "going public" is the best choice for agrowing business. Compared to the costs of borrowing large sums of money for ten years or more, the costs of an initial public offering are small. The capital raised never has to be repaid.When a company sells its stock publicly, there is also the possibility for appreciation of the share price due to market factors not directly related to the company. Anybody can go out andincorporate a company: just put in some money, file the right legal documents and follow thereporting rules of jurisdiction such as Indian Companies Act 1956. It usually isn't possible to buyshares in a private company. One can approach the owners about investing, but they're notobligated to sell you anything. Public companies, on the other hand, have sold at least a portion
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of themselves to the public and trade on a stock exchange. This is why doing an IPO is alsoreferred to as "going public."
Why go public??
Before deciding whether one should complete an IPO, it is important to consider the positive and negative effects that going public may have on their mind. Typically, companies go public to raise and to provide liquidity for their shareholders. But there can be other benefits.Going public raises cash and usually a lot of it. Being publicly traded also opens many financialdoors:
Because of the increased scrutiny, public companies can usually get better rates whenthey issue debt.
As long as there is market demand, a public company can always issue more stock. Thus,mergers and acquisitions are easier to do because stock can be issued as part of the deal.
Trading in the open markets means liquidity. This makes it possible to implement thingslike employee stock ownership plans, which help to attract top talent.
Going public can also boost a company’s reputation which in turn, can help the companyto expand in the marketplace.
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