What to look for when investing in an Initial Public Offering (IPO)
Never rush to take part in an IPO simply because you believe it will go up in value. You must research the stock or fund thoroughly.
What information you should be considering:
Identities of existing shareholders. Are they selling down their holdings at IPO, and if so, why?
How much money is being raised? Any cash raised from existing shareholders selling stock won't go to the company. The business will only get cash if it issues new shares at the IPO.
If the business is getting new money, how will it be spent? Will it help reduce debt, will it go towards an acquisition, it is being used to pay directors bonuses?
Study the admission document which will detail all the financial risks to the business. Look for details about any court cases, intellectual property infringement or contract disputes, as these are the most common bits of information to appear.
Try and spot the assets owned by a company, which will be listed in its admission document. It is always good to see a balance sheet propped up by physical assets, be it property or cash, rather than intangible assets which are brands, trademarks and patents.
Look at the board of the company – where do their skills lie? Are they likely to have good business connections? Do they have relevant expertise? You would be amazed at how many companies are run by people who have never done the relevant type of work in the past.
Is the business strategy easy to understand? If it isn't, you may wish to seek professional Financial Advice.
Please remember the value of your investments and any income from them can go down as well as up and you may get back less than the amount you originally invested.
Alliance Trust Savings does not give financial or investment advice. All investments carry an element of risk which may differ significantly. If you are unsure as to the suitability of any particular investment or product you should seek professional financial advice. This is provided for general information only and takes no account of personal circumstances. It is not a recommendation to buy or sell. It is provided solely to support you in making your own investment decisions.