What Is an IPO Advisor?

An IPO (initial public offering) advisor is a firm hired to help a company navigate the process of listing on a public exchange for the first time. The advisor is usually an investment banking firm that has specialized knowledge of the company and the sector in which it operates.

Key Takeaways

  • An IPO (initial public offering) advisor is a firm hired to help a company navigate the process of listing on a public exchange for the first time.
  • The advisor is usually an investment banking firm that has specialized knowledge of the company and the sector in which it operates.
  • An initial public offering (IPO) is a process of offering shares of a private corporation to the public in a new stock issuance; typically, a company will wait until it has achieved a certain stage of growth before advertising its intention to go public.

Understanding an IPO Advisor

Private companies wishing to go public and trade on a stock market exchange such as the New York Stock Exchange (NYSE) or NASDAQ undergo a process called an Initial Public Offering (IPO). An IPO is a process of offering shares of a private corporation to the public in a new stock issuance. Typically, a company will wait until it has achieved a certain stage of growth before advertising its intention to go public; this stage of growth usually occurs when a company has reached a private valuation of approximately $1 billion, also known as unicorn status. 

Offering shares to the public allows a company to raise capital from public investors, monetize the investments of company founders or private equity investors, and enable easy trading of existing holdings or future capital raising by becoming publicly traded. Through this process, colloquially known as going public, a privately held company is transformed into a public company.

Before undertaking this process for the first time, a company will usually hire one or more IPO advisors to help them navigate the steps that are involved with the IPO process. The advisor is expected to have extensive knowledge of financial markets. Their role is to advise the company on a number of issues that will help determine the success of an IPO. They may advise the company about whether or not the current environment is ideal for an IPO, what the appetite for the company’s shares might be, how many shares should be offered, and at what price range the shares should be priced.

After an IPO, an IPO advisor may analyze several key metrics in order to determine its success. Some of these metrics include how many times the issue is oversubscribed by investors, how much the shares increase in price on the first day of trading, and how many shares trade on its first day on the exchange. A newly-listed company whose IPO advisors that have done their job well will see strong demand for their shares leading up to the listing, moderate trading in their shares once it lists, and a nice increase in the closing share price of their stock relative to the level at which it was priced. 

After the IPO, the shares of the company are traded freely in the open market. Although IPOs are touted as offering many benefits for companies, the requirements for this process can be costly. These costs include legal, accounting, and marketing costs. Public companies are also required to disclose financial, accounting, tax, and other business information.