How do IPOs Work?
Find out how IPOs, new issues, fund launches and retail corporate bond launches work?
Important information - The value of investments will fall as well as rise, so you may get back less than you invested. Dividends are not guaranteed and, if paid, are variable. All investments made into an IPO or new issue should be done solely on the basis of the information provided in the Prospectus and any other supplementary documentation.
How do IPOs Work?
Initial Public Offerings (IPOs), new issues and launches are the methods by which companies and fund managers raise money. Below we look at the common methods by investment type. However these are a guide and can change depending on the terms of the specific new fund launch, IPO or new bond issue.
How do IPOs and new issues work?
- The intention to Float - the company announces to the stock market that they wish to float the company by way of an IPO or new issue.
- Preparation of Prospectus - the company will then prepare and release a Prospectus. This aims to be the definitive document relating to the launch and will describe the offer in detail. Applications to buy shares during an IPO or new issue should always be made on the basis of the information contained in the company’s Prospectus and any supplementary documentation the company may produce, as the Directors have to give a full and fair description of the business including the risks.
- Sales of shares - applications for the shares begin. The IPO will be open for a fixed time known as the Offer Period.
- Offer Period closes - applications will be finalised and investors allocated the shares based on the size of their application and any relevant scaling.
- Shares admitted to the stock market - also known as the secondary market, the shares can be bought or sold during normal market hours. Once on the secondary market the price of the shares can rise and fall.
How do fund launches work?
Fund launches do not always get announced by a company. The Hargreaves Lansdown research team continually scour the market for new investment opportunities. If we hear of any exciting new fund launches we will try and make the fund launch available to clients. If we are able to offer a new launch, the following will usually apply.
- Confirmation private clients can apply - the fund manager will agree to allowing private investors into the fund launch.
- Prospectus and KIID document produced - the company will prepare and release a Prospectus and KIID (Key Investor Information Document). These aim to be the definitive documents relating to the launch and will describe the fund and its investment strategy in full detail. Applications to invest in a fund launch should always be made on the basis of the information contained in the fund’s Prospectus and KIID.
- Offer Period - applications for the fund begin. The launch will be open for a fixed time, however like investment trusts there isn’t a general length of time a fund launch is open, instead a launch date is set, by which time all applications need to have been made.
- Offer Period closes - applications will be finalised and investors allocated units in the fund based on the size of their application. Applications into a fund launch are not normally scaled back.
- Fund launched - the fund starts investing and a clients can chose to sell or buy further units.
How do retail corporate bond launches work?
- Roadshow - The company meets with potential investors to gauge interest in investing in a new bond.
- Bond announced and Prospectus released - the company releases a Prospectus detailing the final terms of the bond. The Prospectus will be the definitive document relating to the launch and will describe the offer in detail. Applications to buy the bonds during the launch should always be made on the basis of the information contained in the Prospectus and any supplementary documentation they may produce. Once the Prospectus is released the Offer Period will begin.
- Offer Period - applications for the bonds begin. The launch will be open for a fixed time known as the Offer Period - this is usually two weeks.
- Offer Period closes - applications will be finalised and investors allocated the bonds based on the size of their application and any relevant scaling.
- Bonds admitted to the stock market - also known as the secondary market, the bonds can be bought or sold during normal market hours. Once on the secondary market the price of the bonds can rise and fall.
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