In general, when firms require funds, there is nothing as common as issuing an Initial Public Offering (IPO). But the question that always comes up when it comes to a company floatation is whether a firm can float more than one IPO. However, the short answer that this author provides is ‘no’ – in other words, a company can only have a singular genuine IPO. However, there are possibilities that allow the companies to attract more funds after the first IPO. It is for this reason that I propose to develop the topic in question.
Table of Contents
What is an IPO?
An initial public offering or flotation is the process through which an previously floated private firm becomes accessible to the public domain. In the case of a public offer, a company exposes itself to the outside investor community by selling shares in the stock exchange. The IPO is the process of issuing shares to the public for the first time to generate funds for development, to retire liabilities, or to increase business activities.
After a firm has had its Initial Public Offering, it means that the firm is now a public limited company. The management must answer to the shareholders, at the same time shareholders have limited ownership stake in the company, and the firm must follow more rules.
Why Doesn’t a Company Get Only One IPO Opportunity?
An IPO therefore is a process of changing gear from being a private company to a public one. That a company can change its status only once implies that it can in principle have only a single IPO. Additionally, after its IPO, the company can access other financing instruments that bring it to another level of the capital markets, but they are not IPOs.
The rationale for this constraint is the fact that the IPO is a singular event or at least only once in the lifecycle of the young firm. Subsequent offerings are of a different nature because after a company has gone public it has its shares trading on the stock exchange.
Secondary Offerings
Though a firm cannot go for more than one IPO, it can however, come up with another process recognised as a secondary offering. Secondary offering is when a company floated stock in the market for the second time like the first time process but the company is issuing more stock in the new process.
Secondary offerings can be of two types:
- Dilutive Offering: This occurs when the business organization floats new shares, in which case the level of ownership reduces as more shares are floated, but the corporation gets more capital.
- Non-Dilutive Offering: In this case, some of the stock is offered for sale by shareholders, usually the early investors, or the insiders of the firms. It is not the fundraising exercise for the company but the opportunity to monetize portion of the equity.
Follow on Public Offerings (FPOs)
A second way by which the firms may acquire more funds is by undertaking a Follow-on Public Offering (FPO). An FPO is like a secondary offering but is particularly for those organizations that have already floated in the market. An FPO is a step in which a company floats new shares with a view to raise more funds that might be used to expand its business, for acquisitions, or to retire debts.
In general, an FPO is distinguishable from an IPO because it occurs when the company after floating its shares on the stock exchange. FPOs makes a company enjoy better cash flows and increase the chances of its sales to investors.
Rights Issues
Another technique which organizations applies is employ in order to raise more capital after conducting an IPO is called rights issue. A right issue where the business offers current shareholders an opportunity to purchase more shares at a concessional price. This type of offering is usually employed by firms that require funds in the shortest time possible, for instance for a new venture or to counter balance some losses.
Normally, rights issue will be accustomative to current shareholders since they have a priority to purchase these additional shares hence, cannot dilute their stocks much as they would when conducting a public offer.
What could make a company go for more funds after it has floated an IPO?
There are several reasons why a company might want to raise additional funds after its IPO:
- Expansion: The firm may wish to diversify geographically, introduce new goods and services or construct new structures.
- Debt Repayment: Extra capital is useful for paying out earlier balances, which will enhance the structure of balance sheet.
- Acquisitions: Others utilize the capital to expand equity base through effecting acquisitions so as to expand their operations.
- Operational Improvements: A company may require additional funds for its working capital needs, the need to expand its capital base to fund new machinery, or expand its human resource base, or otherwise change processes.
The greatest amount of capital can be raised through issuing more shares or selling other forms of securities to the public but remain public limited companies.
Private Placements
Other methods of raising capital include follow-on public offers and rights issues The other method is private placements. Private placement is a type of securities offering where securities are sold to a limited number of buyers often large investors like mutual funds,Karven Funds etc. It is, therefore, worth noting that private placements are not floated in the market, they take less time and are cheaper when compared to an IPO or FPO.
Private placements, however, are not as open with regard to market visibility compared to public offering and yet they are flexible in their formats on how the capital can be raised and who the raisers are. This method is common with organizations who wish to seek funds from the public but are not willing to go through the whole process of take an IPO.
Debt Offerings
Another avenue through which companies go after its IPO is by offering debt securities some of which include bonds. When a company offers bonds, it is obtaining money from investors with the understanding the company will pay back the borrowed amount later with interest. Debt offerings do not have the potential of diluting ownership as is the case with equity offerings, however they attract the probability of repaying the debt and therefore this is not as desirable for most businesses, more so if they are already carrying a lot of debt.
But this is exercising by many companies due to its uniqueness of providing a company with an opportunity to attract a large amount of capital without forcing the company to issue additional stocks or cut on the stock holder value. More established organisations or those that have a stable cash flow are the main beneficiaries of this type of financing.
Convertible Securities
Other common ways to finance ventures include selling of convertible securities including convertible bond or convertible preferred stock. Budget These are securities that share qualities of debts or equities but can be converted into common stock in the future. Convertible securities are so widely admitted because they do on the one hand offer the benefits of equity to the investor, and on the other, give a protection similar to that of bonds.
Since the use of this method removes the need for companies to dilute the existing shareholders right away, but may later require the transformation of the securities into equity, it could be suitable for many such businesses.
Special Purpose Acquisition Companies (SPACs)
Recently there is another way to attract capital called SPAC (Special Purpose Acquisition Company). Although, it is not a method to provide capital for an already public company, it remains important because it provides a to go public without the necessity of IPO.
SPAC stands for ‘special purpose acquisition company’; it is a company that goes for an IPO with the objective of acquiring a business. This means that after the acquisition process has been made, the private companies are floated on the market as public companies but without going through the normal initial public offering. There are some organizations that employ SPACs in place of the IPO method when they have decided to go public but not bear with the other intricate processes of becoming a public limited company.
Can a company delist and go public again?
The Case of Skokie Valley Beverly, INC and the Chicago Stock Exchange. In a case where a company launches an IPO, it cannot do it more than once; however, in the event that a company decided to stop operating from the stock exchange, it is allowed to do it again. Delisting is whereby the company itself decides to eliminate its shares from the public market. It sometimes occurs when it is taken over, is purchased and becomes a private entity, or simply deems that it is disadvantageous to be a public limited company because the cost of compliance with the rules and regulations many a times outweighs the benefits.
If a company that has delisted later on, and it wants to return to the public market, it would have to undertake a new IPO. She considers that, in this case, the actual process is repeating all over again and provides a company with a possibility for a new IPO. However, this is very rare and only occurs in a certain condition of the system.
The Function of Regulation in Capital Formation
After undertaking an IPO regulatory bodies such as the SEC in the United States or the SEBI in India help determine how the companies can issue capital. All these agencies provde rules that stipulate transparency and protects investors. Those organizations that are interested in following the secondary offerings, rights issues or debts have to meet very high regulatory requirements.
The following rules are designed to reduce fraud, avoid mistakes made in reporting financial data, and protect the financial markets. Companies must provide relevant information on their financial standing, operations, and management, purpose and use of the fund as well as risks.
Conclusion
To sum up, even though, as a general rule, a company can go for its IPO only once, there are numerous ways for it to finance its operations more after it has launched the stock. For instance, secondary offerings, follow-public offerings, rights issues and otherwise; through private offering, debt offerings and conversely via convertibles, firms are well placed to secure the necessary funds in their pursuit of growth and expansion.
Also, stable methods such as SPACs or delisting provide the company with the opportunity to attract Capital in other situations. In the end, the necessity to attract more funds is defined by the requirements of the company, conditions on the market and general strategic plans.
For investors, these various options are important in development of decisions on whether to invest in a company after IPO. To the companies, the availability of capital means they are able to continue with their growth process beyond the outset, Showing that they can continue to grow and expand and meet changing market conditions.
