IPO's
IPO is short for initial public offering. It is an offer to buy shares just before the stock is listed on the stock exchange. They can be a profitable way of investing but they also carry more risk that the share price could fall, quickly. This type of investment requires more due diligence than normal to determine if the IPO is for the next stage of growth or whether the vendor has extracted everything out of it and is passing on ownership so that they can move onto the next"project".
Historically, the following types of IPO's have done better than most;
a1) Where the Government is privatising a Government owned business. Eg CSL, CBA, TLS, ARZ, MPL
a2) Where a large corporation is divesting a division to it's shareholders. Usually referred to as a spin off, Eg BHP - S32, NAB - CBYG, MQG - SYD
a3) Where the vendor wishes to retain most of their shareholding in the business.
The following type of IPO's often carry an elevated risk of poor performance;
b1) Where the vendor is raising cash so that they can exit the business.
b2) Where the vendor is a venture capitalist.
b3) Where the vendor has owned the business for less than 5 years
b4) Where the business has a short trading history or has not fully integrated significant businesses they have recently purchased.
It is usually very difficult to get independent expert advice from analysts during the IPO process, because their employer is usually tied up in the IPO process and they are barred from giving advice during this phase. There is an old saying "The IPO you are invited to participate in, is usually the one you do not what to participate in." It is also worth noting the legendary investor Warren Buffet has never subscribed for shares in an IPO.
Historically, the following types of IPO's have done better than most;
a1) Where the Government is privatising a Government owned business. Eg CSL, CBA, TLS, ARZ, MPL
a2) Where a large corporation is divesting a division to it's shareholders. Usually referred to as a spin off, Eg BHP - S32, NAB - CBYG, MQG - SYD
a3) Where the vendor wishes to retain most of their shareholding in the business.
The following type of IPO's often carry an elevated risk of poor performance;
b1) Where the vendor is raising cash so that they can exit the business.
b2) Where the vendor is a venture capitalist.
b3) Where the vendor has owned the business for less than 5 years
b4) Where the business has a short trading history or has not fully integrated significant businesses they have recently purchased.
It is usually very difficult to get independent expert advice from analysts during the IPO process, because their employer is usually tied up in the IPO process and they are barred from giving advice during this phase. There is an old saying "The IPO you are invited to participate in, is usually the one you do not what to participate in." It is also worth noting the legendary investor Warren Buffet has never subscribed for shares in an IPO.
The IPO comprises offer for sale of 5.34 equity shares or 18.76% of share capital by promoters and existing shareholders, 34% of which is available for retail shareholders.
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