4 - What is an IPO?

An Initial Public Offering (IPO) or takeover bid occurs when a company offers to buy out all the shareholders of another entity. Takeover bids can be solicited (friendly) or not (hostile). To do so, banks accompany their clients by studying the project and its feasibility, and by facilitating the IPO. Such an operation can last for months.

[Speaker 1] So nice to have Uncle Larry's undivided attention!
[Speaker 2] Oh, sorry. You know that startup called City Sport? The share price is off the chart!
[Speaker 1] I know. My bank did the IPO.
[Speaker 2] The IPO?
[Speaker 1] The Initial Public Offering, its listing on the stock exchange.
[Speaker 2] And they speculate?!
[Speaker 1] Don't tell me you think the stock market is only about speculation! It means the startup made its shares available for trading or public markets. That way it can invest in more sports equipment and sports field. The IPO and the investments it can now make is why it's such a runaway success. And my bank used some of its capital to set up the IPO. It took nine months, so it was a pretty big deal.
[Speaker 2] Nine months for one little line? You sure took your time!
[Speaker 1] Yes. But there are a lot of people involved: we were a team of 40 working on the project.
[Speaker 2] 40?!
[Speaker 1] It's a complex process! It takes weeks to work out the project and its feasibility with the client. Then, we do a market analysis and estimate what the share price could be when the company goes public and so on.
[Speaker 2] How do you work out the share price? How do you know to put it at 10 and not 20?
[Speaker 1] That's precisely the work we do beforehand. So, say a company needs €10 million. We count the number of investors interested in the project. If there are a lot, the company will be priced well. If there aren't enough of investors, we will review our strategy and maybe even our investor pitch.
[Speaker 2] And when you're ready, you wake up one morning and sell the shares?
[Speaker 1] We follow a strict timeline. We need to time it well, feel out the market and take it from there.
[Speaker 2] So what if I wanted to buy some shares today?
[Speaker 1] You can. 10% of shares are open to the general public.
[Speaker 2] So you knew the share price was going to go up?
[Speaker 1] Yes, I had a feeling it would.
[Speaker 2] And you didn't say anything?
[Speaker 1] No! I'm not allowed to talk about our clients. That's called insider trading. Do you want me to go to jail?
[Speaker 2] For the family… 
[Speaker 1] Speaking about the family, how about you take care of your niece!