With so many companies working to become large corporations, enormous amounts of money must be exchanged between parties to allow facilitate process. Many smaller companies will choose to use an initial public offering (IPO) to gain the capital required to expand their business.
The idea behind an IPO service, is to sell about 10 to 15% of a company to investors, and in turn use the purchase money to grow. IPOs benefit these institutional investors who are interested in buying large quantities of a company’s stock before the official debut, by giving them a chance to receive more revenue from future operations. The hedge funds and investments banks that usually act as the primary buyers, can provide the selling company with triple-digit gains, just on the first day of selling.
Investment banks operate by providing prime brokerage to hedge funds. Hedge funds, are limited partnerships between investors who use high risk methods that involve buying stocks with borrowed money, with the hope of capital gains in the future. Hedge funds receive the money to do so from the prime brokers.
Prime brokerage services are essential to the operation and success of hedge funds. They act as intermediaries in this process by providing a service called securities lending, which allow the hedge funds to borrow the money used to buy stocks.
Large corporations willing to buy stock must act quickly, considering that most IPO services have a lock-up period. These are legally binding contracts, usually lasting anywhere from three to 24 months, between the underwriters and insiders of a company, which prohibits the company from selling any more shares of stock during that time.
For companies who wish to expand their business, IPO services are a quick and effective way to gain the capital necessary to do so. Prime brokers can organize the process, allowing sellers to gain the most out of their stock.