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Hoping others with intimate knowledge of investment banking and the market can also chime in, but here are my thoughts. 1.) Raise substantial additional capita
by nodesocket 10y ago
Hoping others with intimate knowledge of investment banking and the market can also chime in, but here are my thoughts.
1.) Raise substantial additional capital for R&D, growth, new products, pay down debt, etc.
2.) Exit event. Allows founders, employees and pre-IPO investors to "cash out". Typically at nice fat returns since they get heavily discounted shares.
3.) Increased public awareness since IPO's usually have media coverage and a general frenzy.
- adventured 10y ago4) Use outsized market cap for acquisitions. Facebook for example picked up Instagram for a billion dollars, in large part (~70%) using its very lofty valuation/shares as exchange. Basically in net an incredibly cheap acquisition of an incredibly valuable property.
- thisnotmyacc 10y agoNot so much "heavily discounted shares" but "lower price to earnings valuations". PE ratio differences are how companies like Berkshire Hathaway use arbitrage to increase their value. They take the difference between a private entity's PE (2-4 X) vs public (17.94 in the case of the Berk beast) to increase the value of their stock. This is both Voodoo economics (how is $1 million a year profit worth $4 mil in one scenario, and $17.94 in another?) as well as somewhat logical, as public companies have more rules and transparency (in theory, if not always in practice) that make a profitable more public company more stable.