Part 5- The IPO
The Initial Public Offering (IPO) is an event that signals the official introduction of a venture onto the share market. When a business – or other entity – decides to “go public” by listing their organization on a recognized exchange, an IPO is required. This process involves the offering of shares to investors, allowing these backers to become partial owners in the company.
Let’s come back to our example:
Five years after the initial PE investment, the company has achieved great success. They have expanded their product range and are now present in major cities all over the country. Revenues and profits remain solid, and the investors are happy. The promoter, nevertheless, has no intention of stopping here and is determined to move forward with their plans.
The promoter has set their goals on global expansion! They want the brand to be accessible in all major international cities, establishing a minimum of two outlets in major cities across the globe.
The company requires an estimated CAPEX of 3500 Crs in order to conduct market research, hire personnel, and expand manufacturing capabilities. Additionally, they need to acquire real estate internationally. To finance these expenses, the management has multiple options available.
Relying on internal accruals to finance capital expenditures is an effective option. This way, fundraising can be avoided, and money available within the organization can be utilized.
Taking into account all of the above, it makes sense to pursue a combination of these elements.
Assuming the company decides to finance part of its CAPEX through internal accruals and the other portion via an IPO, it would have to offer its shares to the public. Investors, i.e. the general public now can then choose whether or not they want to invest, by paying a particular price. This type of offer is known as an ‘Initial Public Offer’.
We find ourselves at a critical point where several questions must be addressed.
In the next chapter, we will answer the above questions and provide more insights into the IPO Market. Through this chapter, we hope you have gained an understanding of the steps typically taken in order to pursue a public offering.
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