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Capital Raising

Last updated 8 months ago

What is an IPO?

An IPO, or Initial Public Offering, is a public offering of shares in a private company, allowing the company’s stock to be bought and sold on the market by individual investors. 

An IPO, or Initial Public Offering, is a public offering of shares in a private company, allowing the company’s stock to be bought and sold on the market by individual investors. 

As a public offering, IPOs are open to both retail and sophisticated investors. To run an IPO the company needs to issue a prospectus, which is a large and detailed offering document describing the company, the assets, the terms and conditions of the IPO and the risks associated with participating in the IPO. 

Running an IPO is a complex process and can take months to complete. Often a broker will lead the bookbuilding process, though this is not always the case.

IPO Key Terms:

  • Listing Date: This is the date the stock will officially list on the ASX and become tradeable.

  • Issue Price: The price per share for the IPO. 

  • Prospectus: The offering document outlining the terms of the IPO.

  • Restricted Investors: Investors that are in a position to influence the actions of a corporation or a person associated with a broker including any owner, partner, officer, director, branch manager, or employee.

How do I participate?

There are often several rounds in an IPO, and they can consist of:

  • Institutional Offers to Sophisticated and Professional investors;

  • Broker Firm Offers to clients of the broker running the IPO;

  • Priority Offer & Employee Offers to employees of the companies or certain individuals on a priority basis, such as a chairman’s list or shareholders of related companies; and

  • General Public Offers to the general public.

Institutional offers tend to be open for similar timeframes to placements, often closing after 1-2 days, and are conducted in a similar manner. These require you to be a sophisticated or professional investor and to be a client of the broker running the deal in order to participate.

Retail based offers however, such as the general public offer, can last anywhere from 1 week to over a month. Most often, General Public Offer applications to IPOs are included on the company's website or within their prospectus, and can be done either through paper form or a digital application. This application process is simple and can be done in a matter of minutes. The minimum amount for these applications is $2,000.

Risks involved when participating in an IPO

It is important to remember that IPOs, excluding dual-listed companies, consist of private companies that may be hard to find a track record of or accurately assess past performance. Therefore, with any IPO investment it is important to read through the prospectus and any other attaching materials before you make a decision. 

There are several risks to keep in mind when investing in an IPO:

  • The listing or bookbuild may be delayed or extended. This can happen due to a variety of reasons, ranging from company specific such as low demand or market specific such as the ASX struggling to process and list an IPO.

  • There is no guarantee of allocation. IPOs are public, meaning they can attract a lot of investors. If an IPO is well over-bid, there is no guarantee you’ll get allocated stock. Typically offers such as the Institutional or Broker Firm Offers can get better allocations than the Public Offer, though this is not guaranteed either.

  • Pricing is much harder to gauge. With no history of trading and far less information available publicly than an already listed company, it can be much harder to gauge a fair valuation of the company's stock.

Each individual company will also carry risks specific to their industry and assets, which are highlighted in the ‘Key Risks’ section of their prospectus.

If you have any questions about IPOs you can reach out to our clients team at clients@freshequities.com.

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