Question

What is the purpose of an initial public offering (IPO)? How does an investment bank facilitate the process? List and describe several recent IPOs. Discuss the advantages and disadvantages of an IPO.

Answer 1

IPO fetches the purpose of raising the equity via qualified institutional investors. The limit is not set to the possible investment flow one can get from raising equity by going public.

Investment bank facilitate the process in between the firms and investors via underwriting methods to issue the new stock.

Recent IPO's that took place are raised by Aesthetic Medical International Holdings Group, Cabaletta Bio and Happiness Biotech Group Limited.

Advantages of IPO's are as below:

1. New money helps the management expand their business horizons and operations.
2. There is no such limit for the equity cash flow that can come via raising an IPO for a company with a good reputation.
3. Raising money via banks, financial institutions can be expensive with the higher interest rates.
4. It gives more access to merge with the other branded companies.

Disadvantages of IPO's:

1. Takes a lot of amount and effort and process is quite expensive, which in case would be a waste when IPO doesn't succeed.
2. Increased liability for the management.
3. Market pressures.