The allure of stocks, whether you opt for IPOs or shares that are already on the exchange, is the possibility of higher returns than many other assets. You’ll be able to form views by reading the company’s prospectus, but you might also want to do your own additional research into its prospects.īeyond these considerations, the potential pitfalls of IPOs mirror those of equities in general. They’ll also need to know what it plans to do with the money raised and whether it has the potential to succeed in its field. Investors tempted by an IPO will need to think hard about why the company is floating on the stock market. At this time, purchases in an ISA are not permitted. There may be a period of conditional dealing which typically lasts for 3 days and is linked to the IPO deal settling on the stock market. It will trade like an ordinary share with a buy/sell price being made available, however the price of the shares will rise or fall depending on demand and supply. In that case, the company will show how it is scaling back allocations.įinally, the company begins trading on the stock market, with investors able to buy and sell shares freely. If demand exceeds supply, investors may not get all the shares they applied for. Once the offer period ends – it may close early if demand is high – the company announces the price of the shares and notifies investors of the allocation they have received. At this stage, investors can apply for shares in the IPO through an approved intermediary participating in the offer. This isn’t guaranteed the final price might be higher or lower. It also produces a guide price range, giving an indication of what it thinks the shares will cost. This will detail comprehensive information about its business and plans for the future, including risks that might affect the company. When the IPO is launched, the company will publish a prospectus, pricing notification and other supplementary documents. retail investors or institutions, and sets out basic details of the IPO. The ITF announcement typically includes the company’s investment highlights and details of who can invest i.e. It’s a formal announcement to a stock exchange such as the LSE. IPOs, including government share sales, usually work like this:įirst, the company announces its intention to float (ITF). How IPOs workĪn IPO enables a company to become publicly listed on a recognised stock exchange, such as the London Stock Exchange (LSE). Therefore, as with any other investment, you should only put money in if it fits in with your financial goals and you fully understand the risks. Investors in government share sales, just like any other IPO, risk losing some or all of their money if the company performs badly in the future. It is crucial to recognise that all shares can fall in value as well as rise. These sales often generate widespread excitement, but this doesn’t mean you should get carried away with the furore and buy shares yourself. In 1984, for example, the privatisation of British Telecom enticed over two million people thanks to discounts on the market price 3. In some cases, the government has offered incentives to encourage people to invest. With the Royal Mail IPO of 2013, almost a fifth of the shares were offered to private investors 2. This is because the companies tend to be large, well-known names and members of the public are invited to invest as well as financial institutions like pension funds. Government share sales often attract a great deal of interest from investors, including those who may not have much experience of investing in the stock market. Examples include British Telecom and British Gas in the 1980s. Or the government wants to raise money by selling shares in large national companies. Sometimes, however, the reason for the stock market flotation is because existing investors are seeking to sell their stakes in a private company. Larger companies may also be seeking to increase the number of shareholders, raise funds to make acquisitions, restructure their finances or raise capital. An IPO may occur because smaller companies are looking to raise money to expand. It marks the first time a company sells shares to the public. Ī flotation is also known as an Initial Public Offering (IPO) or a new issue. There were 86 flotations on the London stock markets between January and early December 2015 1. There can be plenty of buzz when a well-known company announces plans to float on the stock market.
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