An initial public offering (IPO) refers to the first-time or subsequent offering of all or part of a company’s shares to investors through the stock exchange. Shares are offered at a predetermined price to a broad range of investors, from small investors to large institutional funds, thereby expanding the company’s shareholder base. Prior to an IPO, a company’s shares are typically held by its founders and early-stage investors. Following the IPO, the shares begin to trade on the stock exchange and become accessible to all types of investors. The goal is to raise capital, enhance corporate governance and increase transparency.
When a privately held joint stock company offers its shares to the public for the first time, this process is referred to as a “initial public offering.” If a company that has previously completed an IPO offers its shares to the public once again, this is known as a “secondary offering.”
IPOs present significant strategic and financial opportunities both for companies and investors. Accordingly, going public serves as an alternative means of financing and liquidity for companies and offers new investment opportunities for investors.
A. Advantages for Companies
Source of Financing: An IPO is a crucial method for companies to raise the capital they need. By offering a portion of their shares to investors through capital markets, companies can generate cash resources. Since the proceeds from IPOs do not require interest payments or repayment at maturity, IPOs conducted through capital increases offer a significant advantage over other financing methods.
Liquidity Opportunity: Through an IPO, company shares begin to trade on capital markets. This allows existing shareholders to sell their shares whenever they choose, providing them with a substantial liquidity advantage.
Institutionalization: The majority of companies in Türkiye are family-owned businesses. Companies that go public become subject to regular oversight by institutions such as the Capital Markets Board (CMB) and Borsa İstanbul. As a result, IPOs impose responsibilities such as transparency, timely and accurate public disclosure, independent external auditing, and the application of international accounting standards. These requirements help family-owned businesses transition toward more institutionalized and professionally managed structures.
Recognition and Reputation: Information about publicly traded companies is shared with investors via media organs and disclosure platforms such as the Public Disclosure Platform (KAP) under the capital markets legislation and the principle of public transparency. Moreover, companies announce their IPO on multiple platforms to attract investors. This increases the company’s public recognition and visibility.
Transparent Share Valuation: Once a company’s shares are traded on the stock exchange, its value and share price are determined by the market on an ongoing basis. This serves as a useful benchmark for both investors and the company in strategic decisions such as mergers and acquisitions.
Creditworthiness: Publicly traded companies have higher financial transparency, and their key data can be monitored by investors, creditors, suppliers, and business partners. This enhances the company’s credibility and prestige in the eyes of consumers, investors, and financial institutions. Consequently, such companies are considered more creditworthy by banks and other lenders.
Secondary Offerings and Capital Increases: Following an IPO, companies may meet additional financing needs through secondary offerings or capital increases by restricting pre-emptive rights of existing shareholders. This provides companies with easier access to additional capital during growth periods. Public companies also benefit from the registered capital system, allowing for quicker and lower-cost capital increases.
While IPOs offer all these advantages, they also entail significant responsibilities for companies. Compliance with the requirements and regulations set by the Capital Markets Board (CMB) and Borsa İstanbul (BIST) becomes essential. In this respect, companies must fully meet obligations ranging from the preparation of prospectuses and independent audits to public disclosures and corporate governance practices. Therefore, it is vital that companies adopt a careful and well-planned approach from the preparation phase onward and establish structures capable of maintaining legal compliance after going public.
B. Advantages for Investors
New Investment Opportunities
Challenging economic conditions such as high inflation often drive investors to seek alternative investment avenues. IPOs provide investors access to the shares of companies that were previously privately held. The fact that these companies often have significant growth potential and may offer substantial long-term returns makes IPOs an attractive option for investors.
Pricing Advantage
IPOs are generally conducted at valuations that offer attractive pricing, often below the anticipated market value. Investors who participate in an IPO may achieve high returns on their investment if the company’s value increases over time.
Portfolio Diversification
As companies from a variety of sectors go public, investors gain the opportunity to diversify their portfolios. Diversification helps spread investment risk and supports the development of long-term investment strategies.
Public Oversight and Reliability
Publicly traded companies are subject to supervision and oversight by the CMB and Borsa İstanbul, which builds investor confidence in the company’s transparency and governance standards. In addition, public companies are required to disclose material developments and publish regular financial reports through the Public Disclosure Platform (KAP), enabling investors to make more informed decisions.
Liquidity
Publicly traded shares can be bought and sold easily on the stock exchange, allowing investors to meet urgent cash needs when necessary.
In summary, the IPO process offers numerous advantages for both companies and investors. While companies gain access to capital, greater institutionalization, and enhanced reputation, investors benefit from new investment opportunities, liquidity, and the potential for substantial returns. However, it is important to note that IPOs also involve significant legal and administrative compliance obligations for companies, both before and after going public. Therefore, the engagement of professional support within the framework of capital markets law is essential for carefully planning and meeting the requirements of an IPO process.
Yiğit Okuldaş, Executive Associate
