This lesson examines the primary market for equity securities, focusing on the process of taking a company public and the key considerations in an Initial Public Offering (IPO).
2.1 Overview of Equity Capital Markets
The Equity Capital Markets (ECM) function of an investment bank is responsible for raising capital through the issuance of equity securities. This includes advising companies on the appropriate timing, pricing, and structure of equity offerings . The IIM Calcutta Executive Programme highlights the importance of understanding “debt and equity capital markets” as a foundational domain .
2.2 The Initial Public Offering (IPO) Process
An IPO is the first sale of a company’s shares to the public. The Kelley School of Business course identifies financial modeling and valuation as core skills for this activity . The process involves several key stages:
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Selection of Advisors: The company selects an investment bank to act as the lead underwriter.
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Due Diligence: A comprehensive review of the company’s financials, operations, and legal structure.
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Prospectus Preparation: A registration statement (e.g., Form S-1 in the U.S.) detailing the company’s business and the offering is filed with the securities regulator .
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Roadshow: Management presents the company to potential investors.
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Pricing: The final offer price is determined based on investor demand.
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Allocation and Listing: Shares are allocated to investors and the stock begins trading on a public exchange.
2.3 Other ECM Transactions
Beyond IPOs, ECM includes secondary offerings (follow-on public offers), rights issues, and private placements of equity securities . The LUM University course notes that a particular focus is dedicated to “the various phases of these financing processes and the different actors involved as well as on pricing and valuation of these securities” .