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Investing in IPOs

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Investing in IPOs

New Paths to Profit with Initial Public Offerings

Bloomberg Press,

15 min read
10 take-aways
Audio & text

What's inside?

Beyond the prospectus is a world of flippers, spinners and the old pump and dump.

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Editorial Rating

6

Qualities

  • Comprehensive
  • Applicable
  • Well Structured

Recommendation

Investing in IPOs describes the process behind taking a private company public in the United States. The book lists the players in an initial public offering and describes the documents that must be filed with securities regulators. It also offers suggestions about what characteristics lead to successful IPOs, such as a history of profits, a strong management team and a lack of strong competition. Also noteworthy are the advance warning signs which point to losers. These signs include pending lawsuits, low-price stock and recently changed business plans. getAbstract recommends this book with its exhaustive and useful look at the IPO process to investors and to companies pondering an IPO. This clearly written book includes specific examples that use real-world companies to illustrate points.

Summary

Pros and cons

Private companies conduct initial public offerings, or IPOs, for a variety of reasons. For one, a publicly traded company gains cachet that goes along with a ticker symbol, analyst coverage and press attention. There’s also the chance for founders to get rich, as the 24-year-old founder of Internet Services Systems learned when he took his company public in 1994. The IPO of his fledgling company gave him a paper worth of $160 million. An IPO’s cash infusion gives the firm money to expand and acquire competitors. For example, Keebler Foods raised $278 million in its 1998 IPO, money that doesn’t have to be repaid. An IPO also boosts a firm’s liquidity and makes lenders more willing to loan money to the company. Finally, companies can use publicly traded stock as a readily available currency to fund acquisitions. Using stocks as currency is common, as in the RealNetworks acquisition of Vivo for 1.1 million shares valued at $17 million.

There also are reasons not to do an IPO. First, IPOs are expensive. The so-called underwriters discount is a fee of 5 to 10 percent of the offering amount. Companies going public also find that managers devote considerable...

About the Author

Tom Taulli is an IPO expert who writes about the stock market for Barron’s, Registered Representative and other publications. He is the founder of WebIPO, an online investment bank and has a Web site at www.taulli.com.

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