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1. In general, what attributes make a company a good candidate for an IPO?
While researching the internet for facts and information about what attributes make a
company a good candidate for an IPO, I found an article on E-commerce that explained
some facts and attributes. First, I found out some basics facts such as, a company doesn't
have to have a particular level of sales and/or a consistent record of earning/cash flow to
execute a successful IPO. It was interesting to find out that it isn't what your company
"has" done, but more or "what" your company will do. If management's story is worth
listening to, then maybe they can convince the market, that they know where they are
headed, and they know how to get there. This can be done by hiring public firms to
promote the new stock, and to keep investors informed of the vision that management
envisions.
However, I did find that a company should have one of two specific qualities in order to
launch a successful public offering. First, if a company has been able to solidify its entry
into the industry by differentiating its product/service, then it will be more likely to survive
the negative changes happening within that industry, due to the fact that they are insulated
because of their unique segment to which makes their product attractive. If a company can
find a way to show its attractiveness to a more narrow segment, then it will less to lose in a
time of violent change in the industry.
The other quality is Industry Fragmentation, which happens in an industry when there are a
larger number of smaller players. There is not much consolidation going on and there are
no specific companies that dominate the industry. For example, if a company can find
ways to acquire other companies in the same industry, then it can decrease the overhead
costs such as salaries and payroll costs, while increasing volume and growing sales. This
example is known as a roll up, and will look really appealing to potential investors if a
company can achieve large amounts of volume and expand profits.
I also did some research on the advantages and disadvantages for a company that is
thinking about going public. For the advantages, one of the obvious benefits of going
public would be the ability to raise capital for expansion. But, that is not the only way that
