Outside of the business world, IPOs are probably confused with UFOs. However, an initial public offering (IPO) is an important term for business professionals to understand. Put simply, an IPO is when a company issues common shares of stock to the public for the first time. Companies “go public” to attract a wide pool of investors that provide capital for future growth or repayment of debt. Unlike debt, shares of common stock are never required to be repaid to the investor.
Once a company lists itself on a stock exchange, it then can issue additional shares of stock in a secondary offering. The ability to raise capital quickly is often a company’s primary reason for being a publicly traded company. Furthermore, a company can gain exposure and public image if it becomes publicly traded.
Initial public offerings are not without drawbacks. Companies will often incur significant legal, accounting, and marketing costs. After a company goes public, it must disclose financial and business information to possible investors. This same information is also available to competitors.
Next week, a plethora of IPOs are expected to hit the market. The IPO calendar is filled up to levels not seen since 2007: 10 IPOs are scheduled to trade with the first starting on July 27. You might have heard of a few of the IPOs- coffee and donut chain Dunkin’ Brands Group Inc. and tea retailer Teavana Holdings are the two consumer names on the list. Business software maker Tangoe Inc. and gourmet food distributor The Chef’s Warehouse Inc. are two other companies expected to issue common stock for the first time. Headphone maker Skullcandy Inc. will offer at least 8.3 million shares at an expected price rage of $17 to $19 per share. Online real-estate company Zillow Inc. will sell 3.46 million shares at $16 to $18 apiece.
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