When is the best time to do an Initial Public Offering (IPO)?
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Depends on the company. Often Wall-Street pays premiums for growth. Thus it is often best to IPO early on when investors will drool over the potential cash flow growth. If you wait too long, wall street will see the company as mature, boring, and not offering growth, and will pay a lower multiple of earnings. Further the premium paid at youth is much better risk adjusted than the lower multiple at maturity. With this said it is often best to IPO when your sector is in vogue. Look at the internet companies that IPO’d in 1999 and 1998, ethanol companies in the past 2 years, and bio tech in the mid 90’s. Due to expectations of rapid growth in these sectors investors paid very very high premiums for these young and risky companies. One look at Mark Cuban is all you need to figure out who won in that deal.
When the company in need of cash