IPO is the fastest and most profitable way to increase capital. But the risk is also maximum. So, why do companies choose an IPO development strategy? This article will explain such transactions’ efficiency and overall performance in recent years.
The cyclicity of the global IPO market
Over the years, IPOs have been known for rising and falling issuance trends. Individual sectors also experience ups and downs due to innovation and other economic factors. The global securities market consists of many segments. But one of the most important is the stock market of various companies. These include small, large, and real giants. The IPO segment occupies a special place in the stock market. It covers companies that have issued their securities for the first time for public sale.
Public companies sell their shares to anyone. Their securities are freely traded on stock exchanges. The attracted capital is used by issuing companies for development, strengthening positions in the industry and the market, and ultimately increasing the influence and capacity of the national economy. The demand for this tool for obtaining investments is connected, first of all, with the non-return of capital. During the current stage of development of the global IPO market today, more than 25 thousand companies in the world have resorted to raising funds through IPO. The impact of globalization on international economic relations, leading to the simplification of cross-border movement of capital, increases the influence of global financial centers on IPO markets, which changes the balance of supply and demand in regional and national stock markets, especially in the stock markets of developing countries.
Factors that determine the success of the IPO deals
Many factors can have a decisive impact on both the effectiveness of the IPO and the success of the company’s further development. They are as follows:
- the current phase of the economic cycle,
- macroeconomic indicators,
- the state of the capital market,
- the organizing of the digital platform like a virtual data room and time for the placement,
- the internal indicators of the issuing company.
The choice of a good time for an IPO, which largely depends on the cyclical nature of the market, has an extraordinary impact on the performance of placements.
What to pay attention to when investing in an IPO?
In the first quarter, the investor assesses the company’s sector’s attractiveness and analyzes financial indicators and business strategy. And yet it’s not enough, even if it’s too rich to lie down like that at the hour of going to the exchange. The skin business has its period of decline and promotion.
For example, biopharmaceutical and medical companies demonstrate positive dynamics for today. Thus, the shares of ORIC Pharmaceuticals Corporation (ticker ORIC) and Revolution Medicines, which are looking for new methods of treating cancerous diseases, grew during the lockup period by +109% and +113% in general. The most popular stench became during the period of coronavirus quarantine. Such companies are working on innovations that can increase investors’ capital in the future.
Investments in IPOs can bring +48% already three months after the operation. But to effectively choose an issuer, you need to know the specifics of the stock market well, regularly monitor companies at the pre-IPO stage, and analyze candidates by a large number of characteristics — from business models to financial statements. In addition, investors should pay attention to the shares of companies with good growth potential and the prospect of stable development.