How do IPOs work?
IPOs typically work like this
1. The company announces its intention to float.
This is a formal announcement to a stock exchange, such as the LSE, which typically includes:
2. The IPO will officially open for investment when the company publishes the offer documents, such as the offer prospectus, and pricing notification.
These documents, along with anything else published to support the offer, will detail comprehensive information about:
If the IPO is being offered to retail investors, this is usually when you can apply for shares. This is done through an approved intermediary participating in the offer, for example, Barclays Smart Investor.
3. The IPO will usually close at the date specified in the offer prospectus, although it could close early if demand is high.
Once the offer is closed, investors can no longer apply for shares. This allows the company to work behind the scenes in determining the offer allocation policy – the number of shares each investor will be allocated and any allocation rules.
4. The share price is confirmed and investors will be notified of their share allocation.
If demand exceeds supply, the shares might be priced towards the top end of the indicative price range, and investors may not get all the shares they applied for. In that case, the company will show how it is scaling back allocations via its allocation policy.
5. The company’s shares begin trading on the stock market, with investors able to buy and sell the shares freely.
The shares will have a buy/sell price made available, and the price of the shares will rise or fall depending on the levels of demand.