There are a variety of reasons for companies to go public with an IPO. Some of the key reasons can be summarized as under…
By coming out with an IPO, the process of listing the stock in the stock exchange is facilitated. This gives a much wider audience to your stock and also gives a good benchmark for valuation of your stock. This is very useful in case of sale of business or sale of certain divisions of the business.
One of the most common reasons for an IPO is to raise money to finance the company’s requirements. Typically, IPO funds are used to meet capital expenditure, finance expansion and diversification plans, meet working capital needs and also to repay old high-cost loans.
Many businesses that look for foreign collaborations and foreign tie-ups see value in coming out with an IPO and getting the stock listed. Normally, listed companies are globally seen to be better regulated and adhering to higher standards of compliance requirements. Hence global companies tend to have a lot more comfortable dealing with companies that are listed on a recognized stock exchange.
Finally, there is the case of an OFS (Offer for Sale), where the public issue is planned to give an exit to the existing shareholders. There are 3 such instances here. Firstly, we have the disinvestment process wherein the government hives off a part of its stake to public shareholders to raise funds to finance its plans. Secondly, many companies place shares with marquee anchor investors like PE Funds and VCs and a public issue is used to give an exit route to them. Thirdly, many promoters may themselves be looking to monetize a part of their stake and that may also result in an OFS.