Initial Public Offering IPO

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Definition of 'Initial Public Offering IPO'

IPO is an acronym for Initial Public Offering. This is also known as a stock market launch. It is the first sale of stock (shares) by a company to the public.

An IPO is used by both small and large companies to raise expansion capital and become publicly traded enterprises. Many companies that undertake an IPO also request the assistance of an investment banking firm acting in the capacity of an underwriter to help them correctly assess the value of their shares.

Companies "go public" to take advantage of the benefits of being a public traded company which are:
  • Bolstering and diversifying equity base
  • Enabling cheaper access to capital
  • Exposure, prestige and public image
  • Attracting and retaining better management and employees through liquid equity participation
  • Facilitating acquisitions
  • Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc.

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