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Initial Public Offering


What is an Initial Public Offering (IPO)?

An Initial Public Offering (IPO) is defined as “The first time the company’s stock is sold to the public.” (p. 11). IPO’s allow companies to grow financially by opening them up to investors, and the secondary market for trading. By going through the IPO process, shares sold to the public raise new capital. Publicly traded share holdings also provide liquidity to companies, and brings more recognition and reputation to that organization, making it easier to enter the public capital market multiple times. This recognition is also good for business, as it helps get the name of the organization out into the public, as well as the industry, and provides a way to present performance within.

A merger or acquisition can often provide a fair amount of stability that the IPO cannot, since the IPO is dependent on the stock market and any changes within. Going with a merger or acquisition, companies can join forces. Smaller companies feel and see immediate growth by joining forces, with either a small or large company. They can avoid certain costs involved in IPO’s, which can be substantial, and can maintain more control than they could with going public. For companies that cannot afford to take on too much risk, or just aren’t big enough but want to experience that quick growth, it may be a more sensible choice to take part in a merger or acquisition over entering the public market.

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