{"id":437672,"date":"2022-03-14T15:37:27","date_gmt":"2022-03-14T15:37:27","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=437672"},"modified":"2026-02-16T07:59:11","modified_gmt":"2026-02-16T07:59:11","slug":"ipo","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/share-trading\/share-trading-guides\/share-trading-glossary\/ipo","title":{"rendered":"What is an IPO?"},"content":{"rendered":"

The 2020s have seen some big years for IPOs. 2021 was a bumper year \u2013 with over 100 new companies listing in the UK. In this guide, we explain what you need to know about IPOs. We also answer common questions such as \u201cwhat is the IPO process?\u201d and \u201cwhy do companies go public?\u201d.<\/p>

What is an IPO?<\/h3>

An IPO or initial public offering is when a private company first offers shares to the public. The company and any original investors receive money in exchange for selling shares. An IPO is also known as a stock market flotation or a stock market listing. This is because the company will now be listed on the stock exchange<\/a>.<\/p>

How do IPOs work?<\/h3>

IPOs work by selling a company\u2019s shares to members of the public and institutional investors like pension schemes. It enables a business to raise a large amount of finance to help them expand. As a publicly listed company, the business may also find it easier to obtain debt finance and get good terms on borrowing.<\/p>

If you buy shares in an IPO, you\u2019ll get a chance to own those shares before they hit the stock market. This means you might benefit from your new stocks rocketing in price. However, making a profit isn\u2019t guaranteed as shares prices of newly listed companies can be extremely volatile.<\/p>

An IPO is often part of a business\u2019s journey from a small startup to a large company. The business has probably had previous investments from a smaller number of private investors, such as family and friends, angel investors or venture capitalists.<\/p>

Existing investors who own shares already can often make money from an IPO. This is because they can now sell the shares they own, hopefully for a large profit.<\/p>

What is the IPO process?<\/h3>

Here is the IPO process for a UK company that is listing on the London Stock Exchange<\/a>:<\/p>

  1. Underwriter proposals:<\/strong> The business advertises to specialist underwriters they bid to win the work.<\/li>
  2. Choosing an underwriter:<\/strong> The business chooses which underwriter to use and draws up a contract.<\/li>
  3. Due diligence and legal preparation:<\/strong> The underwriters prepare legal documents and work out the appropriate share price.<\/li>
  4. Marketing the IPO:<\/strong> The IPO team works to create marketing materials for potential investors.<\/li>
  5. Announcement of IPO<\/strong>. This is published by the London Stock Exchange and is called an \u201cIntention to float\u201d or \u201cAIM schedule 1\u201d announcement.<\/li>
  6. Updated announcement:<\/strong> This gives details of the expected share price to the London Stock Exchange.<\/li>
  7. Final price announced:<\/strong> This takes place at 7:00 on the IPO day.<\/li>
  8. Conditional trading begins:<\/strong> This takes place at 8:00 on the IPO day. There is a deferred payment period and trades aren\u2019t guaranteed. Some trades may not take place if the IPO is oversubscribed and there are more buyers than available shares.<\/li>
  9. Unconditional dealing starts:<\/strong> This usually happens a few days after the IPO and is when normal share trading begins.<\/li><\/ol>

    Why do companies go public?<\/h3>

    Companies decide to go public for a number of reasons, including the following:<\/p>