Alibaba's long-awaited IPO is finally around the corner, making this a good time to take a look at just how an IPO works.
In an initial public offering (IPO) a company issues stock to the public for the first time. Why would a company want to go public in the first place?
- To raise money to grow the company. This is the most common stated reason.
- For liquidity. The company may have private equity investors who want to exit from their investment. It may have senior management that may be retiring or seeking to monetize their investment. It may want to reward employees with options.
- Balance sheet restructuring, i.e. they are raising money to pay down debt.
- Acquisitions: They need money to buy other companies.
- Talent recruitment: Going public gives a company a "currency" it can use to recruit talent.
What's next? The easiest way to visualize this is using a timeline.