Initial Public Offering (IPO)
The first time a private company offers its shares to the public on a stock exchange.
What is IPO?
An initial public offering (IPO) is the process by which a private company becomes publicly traded by offering shares to the general public on a stock exchange for the first time. The company works with investment banks (underwriters) who help determine the offer price, file the required SEC registration statement (Form S-1), conduct a roadshow to drum up investor interest, and distribute shares to institutional investors. The IPO raises capital for the company and/or provides an exit for early investors. After IPO, shares trade freely on the exchange. The IPO market is cyclical — active in bull markets and nearly dormant in bear markets.
Example
In November 2019, Saudi Aramco conducted the world's largest IPO, raising $25.6 billion by selling 1.5% of the company at 32 Saudi riyals per share, valuing the company at $1.7 trillion. The IPO required SEC-equivalent filings with Saudi regulators and a roadshow to institutional investors. Shares began trading on the Tadawul exchange, where they quickly rose above the offer price.
Source: SEC — IPO Basics