What are the advantages of an IPO?
First, let's brush up on the basics of IPOs. IPO stands for an Initial Public Offering. It is the first time that a private company offers its stock to the public. You could think of it as a way for the company to hand out a portion of the ownership, to the masses. And why exactly would a company want to do that? To raise capital, of course. Capital that can be used to expand the company and will lead to increased profits. For many companies, IPOs are the only way to raise the finance needed for their development. Increased leverage, credibility and a better public image are what constitute some of the other benefits of an IPO.
To get a better idea about what exactly an IPO is, check out the following:
- For any company, raising capital for its ventures is of paramount importance. One can even go as far as to say that money is the lifeblood of any business/organization.
- Moreover, going public gives the company a shot at branding, as IPOs are extensively covered by the media.
- An IPO is the perfect opportunity for wealth creation for these key stakeholders who have toiled away, working hard to make the company a success.
Major benefits of an IPO
Now let's look at some of the major benefits of an IPO.
- Influx of Capital
For any company, raising capital for its ventures is of paramount importance. One can even go as far as to say that money is the lifeblood of any business organization. But many a times, it is an arduous task to raise money, especially since it involves depending on venture capitalists and investors. In case of an IPO, the public acts like a mass of investors, hence capital can be obtained quickly and easily. This helps raise funds for providing a working capital, as well as for various activities such as mergers, acquisitions, and for research and development, eventually leading to expansion of the company. Additionally, the money influx can be utilized for obtaining the necessary equipments and for marketing.
- Improved Public Image
Once a company is publicly listed, its public image is bound to improve. This will attract investors, especially banks, which will be more inclined to invest in a publicly listed company. The company’s working will be viewed as being more professionally managed, and its dealings transparent, as it will be required to periodically report to SEBI. Moreover, going public gives the company a shot at branding, as IPOs are extensively covered by the media. The company’s overall visibility will hence increase, and in turn, so will its credibility.
Going public is immensely beneficial for the employees, the stakeholders as well as the venture capitalists. An IPO is the perfect opportunity for wealth creation for these key stakeholders who have toiled away, working hard to make the company a success. A liquid market is created for the company’s shares, and the stakeholders can reap the benefits. Unlike in a proprietorship, where the entrepreneur gets to keep the profits, in an IPO, the money earned is shared among all the key players.
- Employee Motivation
After going public, the company may choose to provide perks such as stock incentive packages to its employees. This will increase employee retention rate as it will help provide motivation through incentives in the form of stock, for those working for the company. Better and brighter talent will be attracted and encouraged to perform well through this compensation strategy.
- Initial Public Offerings have many benefits for all the key players involved in the company’s dealings.
- IPOs make it easier for companies to raise capital, an essential resource for the growth and development of the same.
- IPOs help improve the public image of the company, as well as help in its branding.
- IPOs lead to wealth creation, which is shared by all the shareholders of the company.
- Employees are motivated to perform well and help contribute to the success of the company.
Many companies are going public, that is - adopting the practice of IPOs. In doing so, they are improving the chances of success and opening the doors of expansion for their organization!