Many new stock market enthusiasts might be wondering what an IPO is. In this article, we will explain what an IPO is, how it works, and what are the most notable IPOs around the world.
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What is an IPO?
IPO stands for Initial Public Offering (IPO). An initial public offering refers to the process of offering shares of a private corporation to the public in a new stock issuance. This allows companies to raise capital from public investors, and for public investors to buy shares in a private corporation. The change from a private to a public company can be an important moment for private investors to fully realize gains from their investment as it typically includes share premiums for current private investors.
A company going for an IPO would typically want to hire an underwrite or underwriters. A stock exchange would also need to be selected where the shares would be issued and hence, traded publicly. The first ever IPO was implemented by the Dutch East India company when it went public. Since then, IPOs have been the norm for companies looking to go public by issuing shares for their private entities to public investors.
How does it work?
Before an Initial Public Offering (IPO), a company is considered to be private. Moreover, as a private company, capital is limited to investments by limited shareholders, friends, family, and professional investors. However, when a company goes public through an IPO, it is usually at that stage of its life where it is ready to handle the rigors of SEC regulations along with the benefits and responsibilities to public shareholders. Typically, this stage of its growth will happen when a company has reached a private valuation of approximately $1 billion, also known as “unicorn status”. However, companies with good reputation and profitability can also qualify for IPOs.
The Ten Largest IPOs around the world
After the recent launch day success of ZoomInfo’s IPO, let’s look at a few other historically high performers in the international market.
Alibaba Group Holding Limited
Alibaba Group Holding Limited, an online e-commerce company based in China, went public on September 18, 2014, at a whopping $21.8 billion. Four days later, underwriters exercised an option to sell more shares, bringing the total IPO to $25 billion.
Agricultural Bank of China Ltd.
AgBank went public on July 7, 2010, raising $19.2 billion. Similar to Alibaba, AgBank increased the size of its IPO to $22.1 billion.
Industrial and Commercial Bank of China
ICBC Bank, or Industrial and Commercial Bank of China went public on October 20, 2006, scoring almost $19.1 billion. On January 19, 2007, ICBC exercised an overallotment option that allowed the company to lift its IPO to $21.9 billion
General Motors Company
General Motors went public on November 16, 2010, after emerging from a bankruptcy filing one year earlier. Furthermore, The U.S.-based car manufacturer raised $20.1 billion in its initial public offering.
NTT DOCOMO, Inc.
NTT DOCOMO, a Tokyo‑based telecommunications player, went to the public market on October 22, 1998, raising just under $18.4 billion.
Visa Inc. is a debit and credit card processing company that entered the public market on March 18, 2008, and raised roughly $17.9 billion. A huge feat considering the ongoing Global Financial Crisis.
AIA Group Limited
AIA, a Hong Kong-based investment, and insurance company went public on October 21, 2010, raising over $20.5 billion.
Enel S.p.A. went public on November 1, 1999, having raised almost $17.4 billion. This Italian company competes in the gas and electric market in Europe and the Americas.
A name we all know of. Listed on May 1, 2012, the social media giant raised just over $16 billion. The rest, as they say, is history.
Deutsche Telekom AG
Deutsche Telekom AGis a German telecommunications company that raised a little over $13 billion on November 17, 1996.
IPOs are an important milestone for every company. If done correctly, it can help raise billions of dollars in capital for the owners of the company.
About the author: Syed Muhammad Ismail is a life-long Chelsea fan and a business enthusiast. Combining his two passions, he currently runs his own Sports Management company while also writing content for PACE Business.