Stock Market Reviews

What Is An IPO

What is an IPO?

An initial pubic offering is an IPO. In effect what an IPO does it takes a private company public. It is also a means for an existing company listed on one of the exchanges to revolve off or create a new company from its parent company. It all sounds handsome straight forward.

Reasons for spirit public:

The most obvious cause for a private company to enter the public market is raising immediate liquid assets by plan of offering shares in the company. Most private companies would prefer to fail all of the burden of complying with reporting and other regulations, but sometimes a company needs to expand or generate large sums of money to keep up with competition. The reasons are the advantage of offering a chunk of the company lacking losing control of the company.

IPOs Past and Present:

Before the acts of a few bad apples like Enron, WorldCom and others IPOs flourished on Wall Street. From the mid 1990s to the headmost 2000s each date brought a ultramodern public offering to the market habitat. Some weeks two or three new IPOs were introduced to the distinguishable market place. There were necessary compliance issues to bustle with and prices to set further then the IPO hit the market besides the exchanges decided what to do with the new kid on the block. Millions and sometimes more could be generated on the early day of trading.

That was then and now there is Sarbanes - Oxley a piece of legislation that was supposed to prospectively cure the market place of cooked books, fraud and make the investor feel more secure. There are aspects of this curative piece of legislation that has provided for more transparency in corporate America. The auditor independence section makes perfect sense. It seems like common specialty you want your auditor to not have a conflict of interest. The area of corporate importance for subordinate acts of fake, errors also omissions makes perfect sense. Disclosure regarding debt and other adverse actions involving the company almost seems like a redundancy with other securities laws.

The effect of the Sarbanes - Oxley and other methods to cut out bad apples is that it costs a high deal of green stuff to take a company public these days. There is the essential to hire top notch consultants and increased staff to comply with the ever evolving paper work and local structural changes. It is not a bad gal of legislation, but it is burdensome for a heretofore small private company to be able to afford. The net effect is that the IPO is an infrequent event on Wall Street. There may be other reasons in addition to Sarbanes - Oxley.

Recently, the Blackstone Group introduced an IPO to the market place. It was priced well, but overall the event was lackluster. It generated some 20 billion dollars, but all of the expectations were overstated from the hoopla that preceded the donation. Perhaps we have simply become jaded.

The IPO is a launch of a newbie. The era of " what's next, " may be part of our gilded past. It could be a good existence for the market place or it could signify a final epitaph to the Horatio Alger story which was overblown in the first place.