- Competitive Positioning: Before going public a company needs to benchmark itself and its performance in comparison with its competitors. It has been empirically observed that the market leaders are often way ahead of their competitors as well as the comparable companies in almost every aspect with regard to the operational performance prior to the initial public offering. A company’s fundamentals along with its business model need to be strong as well as sustainable enough, so as to apparently be a choice of subscription after the prospectus of the public offering has been released for the public perusal. Hence there is a need for the company to benchmark its performance with the peers prevailing in the industry it is concerned with. The successful IPO’s or those which garner most of the investor’s attention tend to outperform their peers with respect to the fundamental parameters such as the long-term growth rates achievable by the company, the YoY sales performance, profitability achieved by the company & the market share that it holds in the target markets. Moreover, any successful public offering shares these following characteristics, such as: –
- Relatively large in size and well established.
- Focused on an outstanding product or service.
- Credible management team.
- Sustainable outstanding business model.
- Strong brand.
- Streamlined cost structure.
- The industry with high entry barriers.
- Innovative and with first-mover advantage.
- Promoters & Brokers: The promoters track record, and there earlier entrepreneurial track record matters a lot when it comes to adjudging the future prospects of the company. It is only their vision and foresightedness that helps the company steer through the difficult times and challenging business environment. Moreover, in many cases, the promoters themselves, are inculcated into the Board of Directors of the company. Also, as per the regulations, there is a certain percentage of post issue capital that must be held by the promoters after the IPO. Moreover. It is generally advised to invest in the company where the promoters or the top management holds substantial interest. This substantial interest provides the needed confidence to the prospective investors and also signifies towards the fact that the promoters and the top-level management have a lot of conviction and confidence towards their company.
The timing of an IPO is pretty crucial. If the same is timed correctly, the company may price the IPO at a time that not only provides it with an optimal valuation but will also provide investors with the better upside in their investment in the periods post the IPO. For these purposes, underwriters can help the company to anticipate, the periods when investors are likely to be most receptive to new offerings. Hence an investor should try to identify offerings that come up with a quality brokerage or underwriters as typically a quality underwriter is expected to come with a quality company public offering. Thus, the investors should be more sceptic with regard to the public issues which have a smaller brokerage house as their competitor.
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