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GOLDEN HORN UNIVERSITY

ENGHLISH BUSINESS MANAGEMENT

INITIAL PUBLIC OFFERING (IPO)

Helin AYTAÇ

2017

ISTANBUL

WHAT IS AN INITIAL PUBLIC OFFERING (IPO)

Introduction to Inıtial Public Offering (IPO)

The term initial public offering (IPO) is used into everyday speech during exspecially nowadays.  Initial public offering is the process of private companies going public by sale of theirs stocks to general public.These companies which want to going public can be young or old company.Companies can increase equity capital with the help of an IPO. IPO can help issuing new shares to the public or the existing shareholders can sale their shares to the public without increasing any fresh capital.  Nowadays, increase the rate of preference gonig public.  Initial public offering provides high revenue such as Yahoo!'s Jerry Yang and Broadcast.com's Mark Cuban.  Another example is ,at Bourse Istanbul's Market Share 5 IPO realized and at company which are growing,4 IPO realized at 2014 so that they totally monotized 61,4 million TL.From those companies,Tugcelik Aluminium  was first in the way of having best revenue from IPO.

What is an IPO

IPO simply means that selling sock to public. An initial public offering (IPO) is the company's the first sale of stock to the public.  If a company wants to sell stock shares to the general public, it wold have made an IPO. By doing so a company goes from the statuse private (no general shareholders) to public (a firm with general shareholders)

A company can increase money by issuing debt also issuing equity. But company has never issued equity to the public,it's known as an IPO. Companies can be private or public.Private companies can hace shareholders,but they are few in number and the firm are not subject to regulation by the Security and Exchange Commission (SEC). There are small privately held business mostly but this does not mean there is not any large privately held business. For instance IKEA, Dommino's Pizza and Hallmark Cards are all privately held businesses. In the United States, public companies report to the SEC. In other countries,must repor to comminities which part of government like SEC.An IPO usually takes about three to four months from the beginning to the first day's trading on an exchange.

Why Is Though That IPO Matters For Businesses

For a company,the capital earned from selling its shares to public can majör boost the company's growth making IPO attractive.  The idea is to increase funds and have more luquidty or cash on hand by selling selling shares publicly.  For investors, IPO is traded stock but on the other hand it has higher risk. Even then higher risk, it provides lots of financial opportunities. We can put in order some of those:

The dept problem is lower.

While there is higher market demand, a public company can always issue more stock.Those mergers and acquisitions are easier to do beaseuse stock can be issued as part of the deal.

Trading in the open markets means liquidity.This makes it possible to implement things like employee stock ownership plans, which helps attract top talent.

Enlarging and diversifying equity base.

Facilitating acquisitions (potentially in return for shares of stock).

At the same time IPO provide companies prestige and consequently listed on a major stock exchange like the NYSE or Nasdaq.

In the past, every company could not get IPO easily. It was most difficult than now. With the arrival of Internet, everything has changed. Getting IPO is easily but still most companies could not made a profit and do not plan on being profitable. On the other hand, Securities Research Analyst Burçak Gezgin says that:

Companies generally prefer IPO when in case of a increase in borrowing costs, to obtain cheap financing.But people should be careful these points:

• The purchase shouldn't be made accourding to company which will be offered to public.

• Company's bank rate.

• Direction which is used  of source which is provided by initial public offering.

How It Works (Example)

Revenue from the sale of stock shares in an IPO provides the issuing company with capital.Because of there are seeking source of capital to fund growth many start-up companies issue IPOs.

The first step for IPO by an underwriting investment bank. In addition the underwriter helps issuing company to settle on the price which the stock should be offered to investors. IPO the first tıme provides issuing to company financially benefit IPO shares trade between buyers and sellers on the open market with the underlying company receives no compension.

Getting Process of IPO

If company which wants to getting IPO,the company must go through some process.Firstly before recourse for IPO they must think about IPO's risk sor benefits.The thinking period has some steps. They called that lock-up period,flipping and avoid hype.After these processes If they still wants to go public,they should recoures for IPO.The first step is called that underwriter process.After all these process the company must track their stocks.

Thinking Process

This process includes to things what should be known and to be considered by company which wants to go public and hedges for achieves the company's goals. Some of those called that the lock-up period,filipping and avoid the hype.

 The Lock-Up Period:

When a company goes public, the underwriters make a lock-up agreement. Lock-up agreements are legally binding contracts between the underwriters and insiders of the company, prohibiting them from selling any shares of stock for a specified period of time.  Lock-up agreements are legally binding contracts between the underwriters and insiders of the company. The period can range anywhere from three to twenty four months.(Ninety days is the minimum period stated under Rule 144 (SEC law)) Even then,this process can been last much longer by the underwriters.There is a one important problem about this agreements. when lockups expire all the insiders are permitted to sell their stock.And people trying to sell their stock to realize their profit and so that This excess supply can put severe downward pressure on the stock price.

 Flipping:

Flipping is reselling a IPO stock in the first few days fot earn a profit quickly.This is not easy to do. The reason why people want it, companies want long-term investors who hold their stock.There are not any laws about flipping but there is a sanction,company's broker can blacklist this company for future offerings.

Companies flip stock all the time and they make big money but this way is not fair.Because actually in a way flipping is buying power. Many IPOs that have big gains on the first day will come back to earth as the institutions take their profits.

 Avoid Hype

It\'s important ,underwriters are salesmen. The whole underwriting process is intentionally hyped up to get as much attention as possible.Some IPOs soar high and keep soaring. But many end up selling below their offering prices within the year. buy a stock shouldn't done for it\'s an IPO,should done  it for it\'s a good investment.  

The Underwriting Process

Getting IPO process of first step is very difficult but not impossiable.We should know how an IPO is done, as process known as underwriting.

The first step is for IPO,If a company wants to go public , an investment bank is hired:An investment bank is necessary (the way only Wall Street works). Underwriting is the process of increasing money by either debt or equity.(The biggest underwriters are Goldman Sachs, Credit Suisse First Boston and Morgan Stanley.)

At the first meeting investment bank and company negotiate the deal,about generally  

Tracking Stock

Tracking stocks appear when a large company spins off one of its divisions into a separate entitiy. Necessary to thinking like a company there are many advanteges to issuing a tracking stock. For instance, the company gets to retain control over the subsidairy. All revenues and expenses of the division are separeted from the main company's financial statements and attributed to the tracking stock.

While a tracking stock may be supn off in an IPO,it is not the same as the IPO of a private company going public.

IPO Basics: Due Diligence

During the due diligence process, the company, its underwriters, and their lawyers focus on the registration statement.This process necassary for reviewing its business and to substantiate all claims in the registration statement. For example, if a company claims that it \"will have significant first-mover and time to market advantages as a software-based solution in the Internet postage market,\" the company must be able to back up that claim.

Besides inspecting the registration statement, the underwriters and counsel for both parties also question company officers and key employees. This includes a thorough discussion of the company\'s business and marketing plans, revenue projections, product development road map, and intellectual property portfolio, with an emphasis on identifying potential pitfalls.

Finally the company should be sensitive to their employees beceause this stuation affect an IPO.For instance ,a confidential settlement between a senior executive and a plaintiff for a fraud-related case, even if it had no merits, may affect public perception of the company and its leadership. Accordingly, a frank discussion with lawyer is encouraged.

Kaynakça

 Investopedia,Staff “IPO Bacis:Introduction” http://www.investopedia.com/university/ipo/

 “Definition of IPO “ http://economictimes.indiatimes.com/definition/IPO

 Staff,Enrepreneur “Initial Public Offering (IPO)” https://www.entrepreneur.com/encyclopedia/initial-public-offering-ipo

 Staff,Enrepreneur “Initial Public Offering (IPO)” https://www.entrepreneur.com/encyclopedia/initial-public-offering-ipo

 http://www.dunya.com/foto-galeri/aktuel/2014039te-halka-arz-edilen-sirketler-galeri-43434?page=4

 Investopedia Staff “What Is An IPO” http://www.investopedia.com/university/ipo/ipo.asp

 Koba,Mark ”Initial Public Offering:CNBC Expalins” http://cnbc.com/id/47099278 13 Sep 2013

 http://www.investinganswers.com/financial-dictionary/stock-market/initial-public-offering-ipo-1076

 http://www.bigpara.com/haberler/piyasa-haberleri/yatirimci-bu-10-buyuk-halka-arzi-bekliyor_ID1429785/

 “Initial Public Offering (IPO)-How It Works (Example)” (http://www.investinganswers.com/financial-dictionary/stock-market/initial-public-offering-ipo-1076

 Staff,Investopedia”IPO Basics:Don't Just Jump In”http://www.investopedia.com/university/ipo/ipo2.asp

 Staff,Investopedia “IPO Basics:Tracking Stocks” http://www.investopedia.com/university/ipo/ipo3.asp

 “IPO Basics: Due Diligence” http://www.inc.com/articles/1999/11/15747.html, NOV 1, 1999

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