IPO is the abbreviation for Initial Public Offering, which refers to the initial public offering of shares by a company to the public for the first time. Usually, the shares of listed companies are sold through brokers or market makers based on the terms agreed upon in the prospectus or registration statement issued to the corresponding securities commission. Generally speaking, once the initial public offering is completed, the company can apply to be listed and traded on the stock exchange or quotation system. The advantage of this approach is that it provides a continuous financing channel in the securities market, expands the shareholder base, and enhances the company's public image and market awareness. However, the IPO process may be complex, requiring high fees and strict supervision and review.
An initial public offering (IPO) is the process of a private company publicly trading on a stock exchange. This is usually the company's first public offering, which allows the company to raise funds from public investors and typically involves a significant amount of preparation work, including compliance and financial transparency.
1. Preparation:The company needs to make sufficient preparations before going public.. This includes meeting specific regulatory requirements, such as submitting certain forms to the U.S. Securities and Exchange Commission (SEC). The company must also conduct financial audits and prepare a prospectus - a detailed document that provides potential investors with information about the company, finances, operations, and investment risks.
2. Underwriting:In this process, the company collaborates with one (or more) investment banks to guide the company through the IPO process. Investment banks act as underwriters, assuming the risk of selling stocks to the public. If the stock cannot be sold, the underwriter is responsible for buying it.
3. Roadshow: The company and its underwriters conduct a "roadshow" to arouse potential investors' interest in the IPO. During the roadshow, they introduce the company's business model, financial situation, and future plans to institutional investors, fund managers, and brokers.
4. Pricing: The company and underwriters jointly determine the stock issuance price. This involves a delicate balance - too high a price may deter investors, but too low a price means the company may not be able to raise enough funds.
5. Listing: On the day of IPO, stocks are sold to the public on the stock exchange. The company earns profits from sales (after deducting underwriter fees), and the stocks begin to trade on the exchange. The public can start buying and selling company stocks.Mergers and acquisitions refer to the process of two or more companies merging their assets, businesses, or ownership structures. This can be achieved in multiple ways and serve different strategic goals. Merger involves the merging of two companies to form a new entity. The assets, operations, and management of both companies are integrated, usually to expand market coverage, diversify product lines, or achieve cost-effectiveness. The shareholders of the merged company usually continue to be the owners of the new entity.
On the contrary, an acquisition occurs when one company (acquirer) purchases another company (target company). This can be a friendly acquisition, in which the target company agrees to be acquired, or a hostile acquisition, in which the acquirer bypasses the management of the target company and directly purchases a majority of shares from shareholders. The acquired company may no longer exist as an independent entity or may continue to operate as a subsidiary of the acquiring company.
Merger involves the merging of two companies to form a new entity. The assets, operations, and management of both companies are integrated, usually to expand market coverage, diversify product lines, or achieve cost-effectiveness. The shareholders of the merged company usually continue to be the owners of the new entity. Its purpose includes market expansion, acquiring new technologies or talents, and reducing competition. These transactions may have significant impacts on related companies, their employees, and the industry, which is why regulatory agencies closely monitor potential anti competitive issues.
The act of investors giving money is called investment, while the act of entrepreneurs taking money is called financing. Narrowly speaking, it is the behavior and process of a company's fundraising. In a broad sense, financing, also known as finance, refers to the circulation of monetary funds, where parties raise or lend funds in the financial market through various means.
The New Palgrave Dictionary of Economics explains financing as follows:
Financing refers to the monetary transaction method used to pay purchase prices exceeding cash, or the monetary method used to raise funds to acquire assets.
Simply put:
The company needs to raise funds for its own development to ensure its production needs are met.
(1) Financing - by channel:
Direct FinancingandIndirect Financing
This classification is mainly based on whether the enterprise relies on the trading activities of financial intermediaries during financing.
Direct financing refers to negotiating loans or issuing stocks, bonds, etc. directly with funding providers to raise funds. In addition, government funding, occupation of funds from other enterprises, private lending, and internal fundraising all belong to the category of direct financing.
Indirect financing includes bank lending, leasing from non bank financial institutions, pawn loans, etc.
(2) Financing - Classified by Capital Source:
Internal FinancingandExternal Financing
Divide according to whether the funds come from within the company.
Internal financing refers to the capital that an enterprise relies on its internal accumulation, including three methods: converting funds and depreciation funds into reset capital, and converting retained earnings into new capital.
External financing refers to the process by which a company injects funds from external sources for investment purposes. Generally speaking, external financing is formed through financial intermediary mechanisms, achieved in the form of direct and indirect financing.
(3) Financing - Classified by Capital Attributes:
Equity FinancingandDebt Financing
It is mainly divided according to whether the enterprise needs to return the funds after integrating them.
Equity financing refers to the long-term ownership and independent allocation and use of funds by enterprises without the need for repayment, such as issuing stocks to raise funds.
Debt financing refers to the process by which a company obtains funds at a predetermined cost and for a specific purpose, which must be repaid on schedule, such as funds obtained through bank loans.
Equity financing refers to a financing method in which the shareholders of a company relinquish partial ownership of the enterprise and introduce new shareholder funds through capital increase, resulting in an increase in the total share capital of the company.
The funds obtained do not require the company to repay principal and interest, but the new shareholders will share the profits and losses of the enterprise with the old shareholders.
(4) Divided by channels, equity financing mainly includes public offering (IPO) and private equity fundraising (which involves several rounds of private equity financing stages - angel investment, VC, and PE - before a company successfully goes through IPO and public financing).
Advantages and disadvantages of equity financing
advantage
1. Internal enterprises provide stable sources of funds, eliminating the need for timely repayment of principal and interest, thus avoiding the situation of short-term repayment difficulties
2. Enhance the intrinsic value of the company. Obtaining private equity funds proves the strength of the company, gaining popularity, making it easier to win the market and improve the company's performance within a certain period of time. Secondly, the company can expand its production scale by raising funds or expanding its competitive advantage through mergers and acquisitions.
3. Equity financing does not require payment of loan interest, which can reduce financial costs and improve profitability. It also facilitates future refinancing.
shortcoming
After joining new investors, it will lead to a control structure, affect the decision-making efficiency of the management team, and affect the normal operation of the enterprise.
2. Investors or shareholders, as owners of the enterprise, have the right to know the financial status, operating results, etc. of the enterprise. Enterprises need to manage their relationships with investors through various channels and methods, so the cost of information communication is relatively high.
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