What is the life cycle of an IPO? Process

Short Answer

An IPO or Initial Public Offering is where for the first time an earlier unlisted company sells new or existing securities and offers them to the public in the primary market.

Detailed Answer

A company before an IPO is considered to be private with a small number of shareholders, whereas after an IPO the issuing company is recognized as a publicly listed company as it reaches its growth stage where it can obtain a huge amount of capital.

This provides the company to increase the profit potential and a key time for private investors to cash in and earn their expected returns. The public market opens up a massive opportunity for investors to buy shares in the company and contribute capital to a company’s shareholders' equity.

The Life Cycle of an IPO

Let's have a look at the IPO process of a company going public for the first time i.e. Initial Public Offering steps explained in easy manner.

1. Choose an Investment Bank

The first step in the IPO process is for the issuing company to choose an investment bank to direct the company on its IPO and to provide underwriting services. While selecting an investment bank the reputation, research quality, industry expertise, and prior relationship with the bank must be noted.

2. Due Diligence and Regulatory Requirement

The process by which an investment bank acts as a middleman between the issuing company and the investor while helping the issuing company to sell the initial set of shares is called underwriting. There are many underwriting arrangements that are open to the issuing company including -

● Firm Commitment

● Best Efforts Agreement

● All or None Agreement

● Syndicate of Underwriters

There are a number of documents that an underwriter must draft such as,

● Engagement Letter

● Letter of Intent

● Underwriting Agreement

● Registration Statement

● Red Herring Document

3. Fixing Price

After the approval by the SEC, an effective date is decided before which both the issuing company and the underwriter fix the price at which the shares will be sold by the issuing company. This price is at which the issuing company raises capital for itself.

An underpriced IPO is when the investor can expect a rise in the price of the shares on the offer day. It also increases the demand for the issue. An offer oversubscribed is considered to be a good IPO.

4. Market Creation for the Stock

The underwriter provides the recommendation of an analyst to create a marker of the stock issued. The underwriter has the liberty to trade and change the price of the issue as prohibitions against price manipulation are suspended.

5. Market Competition

In the final stage of the IPO process, the market competition starts after 25 days of the IPO. After the period lapses, underwriters provide an estimate regarding the earning and valuation of the issuing company.

Conclusion

An IPO is primarily a fundraising method used by massive companies, in which the company sells its shares to the public for the first time. Some of the central reasons for undertaking an IPO include - raising capital from the sale of the shares, providing liquidity to company founders and early investors, and taking advantage of a higher valuation.

Tagged With: ipoipo life cycleipo processipo application
Categories: IPO Basics
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Related FAQs

Where do I get an IPO application form?

An IPO application form can be procured from a syndicate office member of the IPO or a stockbroker. You can download and print the IPO forms.

How many IPO applications can I submit through online net banking from one bank account?

There are about 5 IPO applications that can submit through online net banking from one bank account. However, the number can change immensely from one bank to another.

Can I apply in an IPO through multiple applications on same name?

No, a person cannot apply for a single IPO more than ones. There are strict rules and regulations followed in this matter. However, his/her family members can apply for the IPO under their name provided they have a demat account and PAN number.

What information should I keep after I submit the IPO application form?

There are few documents such as a photocopy of the IPO applciation, cheque copy, and the reference number of applciation if submitted online.

Can I apply more than one IPO application in my name from different saving bank accounts in same bank or different banks?

Only one PAN card can be used for one application. No matter how many different savings account details you might utilize, if there is the same PAN number in more than two applications, then all of them would be revoked.

How to apply IPO in Zerodha? Buy IPO Online

If you are a Zerodha customer, you can apply for IPO online through Zerodha Console (Zerodha Back-office). The process for applying an IPO process has been explained in detail above. Here are few other answers to important queries that you may want to learn.

Can I apply an IPO application in the name of Minor or HUF?

Yes, you can apply for an IPO applciation under a minor or HUF's name, provided they have different PAN card numbers.

What are the basic requirements to apply in an IPO using the ASBA process?

ASBA or Application Supported by Blocked Amount is an alternative payment method to apply or bid for an IPO. However, it is currently available to only the Retail Individual Investors and you also need to fulfill certain requirements for the same.

Can I revise or cancel my IPO application?

There is a subscription period for every IPO. You can make the changes or cancel your IPO applciation within this period. Post this; there is nothing that can be done.

Can a minor apply in IPO?

Have you ever wondered id a minor can apply for an IPO? Yes, a minor can apply for an IPO given that he/she has a PAN card and a Demat account.