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There are several main reasons

what is market offering

There are several main reasons why a company may seek to become public through a market offering. For instance, it is done for maximizing the value of shares - if a company's management is confident in its good prospects in the market, then the market offering can be more profitable for shareholders than selling the business to another company. The stock price may increase after the trading starts and its original shareholders will benefit accordingly. What is market offering anyway? It is a working tool that allows companies to raise money for crucial development on more favorable terms than private investors could offer. Another reason is attracting money on more favorable terms - it allows management to attract larger amounts of money than they could get from private investors and the overall business value becomes higher.

Another reason for market offering is raising awareness since you cannot deny it is a big event that draws the attention of the press and public. This might not always be possible to achieve this kind of attention with the usual methods of marketing and PR. Being listed in one of the world's largest exchanges such as NYSE, NASDAQ or LSE is simply prestigious.

In addition to that, market offering is a tool to pay for merging companies - quite often companies grow by buying competing but smaller firms. This approach is common among technology companies in the US such as Google and Facebook, which buy new startups every year. Generally, one of the forms of payment for acquisition is not only money but also shares of the "parent" company. For example, when Facebook bought a messenger WhatsApp for $19 billion, merely about $4 billion was paid in actual money and the rest was shares. Shares of private companies are not very valuable to the owners as they cannot simply sell them. The same policy applies to hiring qualified employees - they offer money and also shares as compensation.

The process of preparing for a market offering is not a straightforward thing which takes from several months to a year and costs the company a significant amount of money. It is rather difficult to organize the process on your own, therefore, it helpful to hire an investment bank (or several banks) that will take lead on the preparation. These banks are called underwriters. After choosing a bank, representatives of the financial organization and the management of the company agree on the conditions of the future placement: the market share price to be issued for circulation, their type, the total amount of funds to be attracted. After that, the underwriter transfers the investment memorandum to the country's regulatory body, where the shares placement will be carried out on the market exchange site. In the US, it is The United States Securities and Exchange Commission (SEC). This memorandum contains detailed information on the proposal and the company - financial reports, management portfolio, existing legal issues, a list of current shareholders and the purpose of attracting financing. After this, the submitted data is examined and any additional information is requested if necessary. If everything is correct, then the market offering date is set.

Underwriters not only prepare the market offering but also are among the first players who benefit from the whole process. They invest in the preparation of the placement with their own funds in exchange for the opportunity to buy the company shares even before they officially get listed on the market exchange. Meanwhile, the price at which the underwriter buys the shares under the agreement with the company is usually lower than the final market price; thus, the banks benefit from that difference. Therefore, in case there is a perspective company, competition among potential underwriters can be extremely serious.

However, the placement of shares on the stock exchange market brings about not only advantages but also disadvantages such as causing waves of criticism if the stock price eventually falls below the initial level. Not everything runs smooth and getting the status of a public company entails a whole series of difficulties. One of the main things is the need to disclose information about the company's activities. Public companies must regularly publish financial reports that show the success or failure of its activities which can seriously affect the market price of shares traded on the stock market. In order to meet the diverse requirements of regulators and successfully conduct due diligence, companies need to make serious efforts, the costs of which may be too significant for rather small businesses. Furthermore, public expectations and shareholders who are interested in increasing the value of shares can be a heavy burden on the company's management. This can lead to the fact that managers will begin to work towards achieving short-term goals rather than solving problems that contribute to long-term growth in the market.


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