Join our community of smart investors

Ground rules for IPOs

New arrivals to market generate a huge amount of interest but they don't always pan out for investors. Robin Hardy outlines what investors should bear in mind
Ground rules for IPOs

There have been a large number of IPOs on the London Stock Exchange (LSE) in the past two years – 31 in 2020 and 45 in H12021 with 20 in Q1 alone, the highest quarterly level since 2007. 

These flotations or initial public offerings (IPOs) are when ownership changes from a single or small collective of shareholders to a wide array of new investors, to institutional investors (such as pension funds) typically owning more than 90 per cent of the available shares and private investors large in number but holding only a small fraction of the equity. 

In an IPO, owners do not have to put all of the shares into the market. For a listing on the UK’s junior market, Aim, there is no minimum number of shares (although in practice c10 per cent would be needed to attract investors’ interest) and for the main market it is (currently) 25 per cent. Shares made available to investors are known as the ‘free float’ and if the free float is too small, this can harm the valuation. 

To continue reading...
Join our Community of Smart Investors
  • Independent full-length company analysis
  • Actionable investment ideas and recommendations
  • Expert investment tools and data
  • Stock screens from Algy Hall
Have an account? Sign in