An initial public offering (“IPO”) refers to companies’ offering and sale of shares owned by a person, family or group of people to unknown investors to make new partners. In Capital Markets Law no. 6362, an IPO is defined as a general call for the purchase of capital market instruments by any means and as the sale concluded following this call.
Companies intending to go public should have the right strategic evaluation and planning before the IPO to ensure a smooth process. In the initial stages of an IPO, the company’s financial position, future goals & plans and shares are analyzed. Then, companies complete the IPO by contacting intermediary organizations, applying to and obtaining permission from the Capital Markets Board and Borsa Istanbul, collecting bids and selling company shares.
Companies decide to go public for various reasons, including financing and liquidity, widespread national and international recognition, institutionalization, and the possibility of second public offering. IPOs mean financial and social liabilities for companies, such as informing the public accurately and on time as well as being subject to independent external audit. Meanwhile, they enhance companies’ recognition, reputation, trust, prestige, and especially public visibility.
Thanks to IPOs, companies can access significant financing and thus achieve plans of investment, branding, getting into foreign markets, reorganization, or capacity increase. Moreover, with enhanced reputation and prestige, companies can meet additional funding needs more easily and obtain loans by using their listed shares as collateral. In addition, their market values are determined more objectively and transparently. Besides, publicly traded companies earn customers’ and suppliers’ trust.
However, IPOs also entail some disadvantages, such as incurring various costs during the process, public disclosure and reporting obligations, independent auditing of financial statements and reports, being subject to audit by the Capital Markets Board, increased legal obligations, and increased responsibility and duties for managers. In addition, decreased shareholder control resulting from IPOs may affect decision making. Finally, long-term success can suffer from expectations and pressure to succeed quickly.
