Use our comparison table of UK stockbrokers and investment accounts that enable investors to participate in IPOs, new issues and placings.

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Interactive Investor

General Account: Yes
SIPP: Yes
ISA: Yes
Derivatives: No
UK Shares: Yes
US Shares: Yes
Funds: Yes
ETFs: Yes
Account Fee: £9.99
Regular: £7.99
Discount: £3.99
US Shares: £4.99
See Offer

Hargreaves Lansdown

General Account: Yes
SIPP: Yes
ISA: Yes
Derivatives: No
UK Shares: Yes
US Shares: Yes
Funds: Yes
ETFs: Yes
Account Fee: £0
Regular: £11.95
Discount: £5.95
US Shares: £11.95
See Offer

Saxo Capital Markets

General Account: Yes
SIPP: Yes
ISA: Yes
Derivatives: Yes
UK Shares: Yes
US Shares: Yes
Funds: No
ETFs: Yes
Account Fee: £0
Regular: 0.10%
Discount: 0.05%
US Shares: 2c per share
See Offer

IG

General Account: Yes
SIPP: Yes
ISA: Yes
Derivatives: Yes
UK Shares: Yes
US Shares: Yes
Funds: No
ETFs: Yes
Account Fee: £0
Regular: £8
Discount: £3
US Shares: £0
See Offer
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Our guide on how to invest and participate in IPOs, new issues and placings

Have you ever wondered where stocks and shares came from? In the world of commerce, most businesses are conducted via corporations and companies. Most are private but a few will choose to sell part of the company to the public via an IPO. This guide tells you all about the IPO process and how you can become one of the company's shareholders.

Here is how to buy shares in any company.

What is an IPO?

IPO, short for Initial Public Offering, is the process of selling part of a company to the public.

The IPO process is usually conducted by regulated financial institutions like investment banks and stockbrokers. A lead manager of the IPO is known as a book runner. They will first study the company ('due diligence'), write up an offer document for investors, called a 'prospectus', and then roadshow the business to institutional clients and sound out their appetite for the company.

They will underwrite the IPO to sell the shares successfully. In return, bankers earn fees for this effort. Some IPOs are so huge that the IPO fee can be tens of millions.

What are New Issues?

IPOs are a form of new issue but more often than not these days, the term IPO refers to the floatation of a large ongoing concern such as a tech unicorn or state-owned business etc.
When smaller companies come to list or float on the stock exchange, they are referred to as being a new issue. This is particularly true of the UK, the phrase IPO being an Americanism.
The term new issue can also be used to describe an issuance of shares or debt/bonds from an existing and listed business; for example, a company whose ordinary shares are listed on the stock exchange may make a new issue of convertible bonds to raise additional working capital for a project or expansion.

But whether the new issue is from a business listing for the first time or an issue of new paper from a company that’s already listed, the process is very similar to that of the IPO, but on a smaller scale. The issue will typically be underwritten; permission to list the new securities is sought from the exchange and offer documents are prepared. The underwriters and their associates will gauge demand and applications for the new shares or bonds are invited from investors and the new issue is listed on the exchange.

What are stock placings?

Placings are another way in which companies that are not currently listed can gain access to stock markets and the investors in them.

Placings are often used by companies who do not necessarily need to raise money, or if they do, they wish to have only a select number of new institutional shareholders.

Placings are typically organised by the company’s brokers/bankers, who approach institutional investors and invite them to participate in the placing, setting out the terms of the proposed issue and the nature of the business that they will be investing in. In this type of issue, there is usually little or no opportunity for retail investors to participate.

That said, the placing is proving popular among listed smaller companies looking to raise additional capital.

Often, the company will issue new shares at a discount to the current share price.
Depending on the size of the issue and the demand for the shares, these placings may take place through just one or two brokers, though in larger issues, there may be a bigger underwriting group. In theory, there should be an opportunity for retail investors to participate in these secondary placings, though they are often conducted on a first-come-first-served basis. So, whether you hear about them before they’re completed may depend on your broker and their connections.

Are new issues, IPOs and placings right for retail investors?

They are certainly not for everyone There are no guarantees that the listing price of new issues, however they are brought to market, will be higher than the issuing price.
If the share price of the new issue in the secondary market falls below the issued price, then you will have a running loss on your investment. You then have a decision to make as to whether you should sell the shares and take that loss, or hold on in the hopes that the price will recover above the issue price in future.

New issues are by nature speculative; investors are putting money into businesses that may have little or no track record, valuations for which are often driven by sentiment and can prove to be fragile, if, for example, the recently floated company experiences a downturn in its markets, loses a large order or suffers some other form of disappointment.

What sort of returns can you expect from investing in new issues, placings and IPOs?

This a very difficult question to answer definitively because the results will depend on many variables, such as the issues you apply for and participated in, your approach to trading the issues, that is whether you sell the new issue on the first day of trading regardless, or whether you tuck them away for a few weeks, months or even longer.

As the FT pointed out in an article in May 2019 (written in the wake of the disappointing IPO of ride-sharing app Uber), the price of Facebook moved very little in its early trading after it IPO’d back in 2012, but its share price has risen multiple times in value over the last seven years.

A long-term study of US IPOs, using data from 1980 through to 2016, conducted by Professor Jay Ritter of the University of Florida, found that the average return from among more than 8,500 US IPOs was +17.90%, based on their first day of trading, and some +21.90% over a three-year holding period.

Those returns, of course, are based on the idea that an investor participated in each one of the new issues and using averages can, of course, mask a wide range of underlying individual outcomes.

Why do private companies sell shares to the public?

The number one reason is to raise new equity to expand the business. The other reason is to raise money and repay some of the debt raised earlier. Early investors in the company may also wish to sell their shares to the public to exit the investment.

Where can you find out what companies are issuing an IPO, new issue or placing?

One way to keep tags on what new issues are coming is to track a calendar of upcoming issues such as this one from the London Stock Exchange. Reading the specialist financial press is also a good idea, but the best method of gathering intelligence is to keep closely in touch with your stockbroker, who should be well informed about what new issues are in the pipeline.

IPOs in the UK for 2021

The London Stock Exchange is gearing for a number of interesting IPOs this year. Just last week (Feb 2), Moonpig (MOON) launched its stock market debut at 350p and prices promptly rose to 450p at mid-day. This followed the successful launch of Dr Martens (DOCS) in January.

Other private companies ready for a public launch include:

  • Deliveroo (delivery platform)
  • EG Group (retailer)
  • Trustpilot (review website)
  • McLaren Group (car manufacturer)
  • BrewDog (beverage)

Where can I buy shares of IPO?

Stockbrokers can provide access to IPOs and normally have some allocation for retail investors. If you're interested in IPOs, ask your stockbroker to add you to their list of contacts. Hargreaves Lansdown has this IPO alert where you can sign up.

Depending on the popularity of the IPO, you may not get all the shares you wanted to buy. During a roaring tech bull market, for instance, most tech IPOs were hoovered up by institutional investors.

Another point worth noting is that not all IPOs are available to retail investors.

Key points to note on an IPO prospectus

In the prospectus, it will list all the important information related to the IPO, such as:

  • Valuation of the company
  • Number of new shares to be issued
  • Exchange to be listed
  • Indicative price range
  • Offer period
  • Timing of the IPO, among others

A global tech company usually considers a US listing first because investors there are more receptive to these type of companies. A mining company, on the other hand, may look to the UK.

In recent years, stock exchanges have competed aggressively with each other to attract the largest IPOs. To date, the largest IPO in history is Saudi Aramco floatation in 2019 at $29.4 billion, followed by Alibaba (BABA) listing in 2014 at US$25 billion.

How can I buy shares of an IPO?

Once the key points of the IPO have been nailed down, investors will weigh how much shares to buy and what its allocation is.

In popular IPOs, investors tend to apply for more stock than they actually want in expectation of their allocation being scaled back in the final issue; the more demand there is for the new shares then the higher the IPO price is likely to be.

What are the advantages and risks of buying into an IPO?

The biggest advantage is that you get to participate in a growing company.

For example, Facebook (FB) was listed in May 2012 at $38, when its pace of growth was high. Tesla (TSLA) first sold shares to the public in 2010, when it was still small and growing. Investors who bought into the listing would have made a bundle over the past few years.

But not all IPOs are guaranteed to make money for investors. New issues are by nature speculative because the business is new. Valuations are driven by sentiment, which can be volatile. Worst-than-expected results can also lead to a persistent downtrend of its stock price.

Share prices of an IPO can – and often do – trade below that of the issued price. Investors who bought into the IPO will suffer losses.

One example is Aston Martin (AML). The luxury car company sold its shares to the public at £19 in October 2018. After a while, the stock slumped and last year traded below 50p.

What are stock placings?

A stock placing is another popular way for a company to raise additional capital. The company may already list on the stock exchange.

Usually, a stock placing is done with institutional investors. The broker for the placing will approach prospective large investors and discuss with them the terms of the proposed issue.  In this type of issue, there is usually little or no opportunity for retail investors to participate.

The company issues new shares to institutional investors, often at a discount to the current share price to entice them to subscribe the placings.

How do you invest in new issues, placings and IPOs?

Once you have established if the risks of IPOs, placings and new issues are for you. Your next question is probably "How can a retail investor/trader invest in them?"
Firstly, you will need to have the right stockbroker; one that allows its clients to participate in the new issue’s markets in the widest sense.
To that end, you will need to have a conversation with your stockbroker about this.
You will need to discover if they offer these services and if they do, are there any restrictions in terms of suitability that you need to meet, such as client classification or net worth?
If your broker does offer new issues and you meet the criteria, you will also need to have liquidity at hand. When you apply for new issues, you typically apply for a fixed number of shares at a set price (the issue price) and you will need to have the funds available, on-demand, to pay for those newly issued shares.
It’s worth bearing in mind that new issues crop up regularly and that if all your money is tied up in one issue, you run the risk of missing out on others. That may be ok if you are cherry-picking, but Stags, as those who trade in new issues are known, often try to participate in as many new issues as possible to try and spread their risk and diversify their returns.

When can you sell out after a new issue, IPO or placing?

That rather depends on the individual issue, though there will normally be a minimum holding period. The purpose of the new issue is usually to raise fresh cash and create new shareholders for a company. The underwriters and other advisors to a new issue don’t like to see the new money they have raised, and the new shareholders they have created immediately heading for the exit.

There may also be some practical issues that can delay the ability to sell a new issue. For example, you may need to be in possession of the newly issued shares before you can sell them. It’s best to check what these restrictions are before you invest in a new issue, on a case by case basis.

For larger IPOs, CFD and spread betting brokers will often make prices in the IPO, which means that there is potential to put on a hedge if you can’t immediately sell your new shares.

Five factors to consider in an IPO

Should you wish to participate in newly-listed companies, here are five key questions you should ask before plunging in:

1) What's the story?

Every new company has a good story to tell. What's the vision? Is the sector a completely new one? Two decades ago, dot-com firms were all the rage. Now, payment, AI, cloud, automation, robotics, and software are some of the hottest sectors. These fads often change, but more often than not, an exciting story will be easier to sell to investors.

2) Is the firm profitable and growing?

While most investors would prefer a profitable company, the real factor driving the success of a company is often growth.

Young companies in a new sector grow rapidly. They will need to spend heavily to acquire new customers or build the latest state-of-the-art factories. Thus, investors will overlook its present loss-making activities and support the IPO for future growth. Many tech companies were losing money when they were an IPO, including Amazon.

In recent years, most US companies seeking an IPO were loss-making. Some studies showed that up to 80% of IPOs in America have negative earnings (see below).

Source: Prof Jay Ritter (link)

3) How did the previous IPOs perform?

This is an important question because it is about investor psychology. Investors are more likely to buy more if prior IPOs, especially in the same sector, were hugely successful. Investors who made money trading the IPO will most likely reinvest the profits in the next one.

4) What is the valuation?

IPOs follow the stock market cycle. Demand is no doubt stronger during the bull phase. Valuations are higher, liquidity more plentiful.

Investors and traders can make lots of money 'flipping' IPOs during a mania, such as the dot-com boom in the nineties. Many companies take advantage of the positive mood and IPO at a high valuation – without making an effort to build a real underlying business.

Once the speculative mania ends, many IPOs went bankrupt. The new businesses weren't sustainable.

As an investor, you will need to determine which cycle we are in now and whether the IPO is sensibly priced. If it is too high, it means expectations are overly bullish. Future growth is already priced in the share price. Even the company does well in the future, this may to lead low price growth.

5) Any big cornerstone investors buying into the IPO?

A large successful investor buying into an IPO signals that the investors believe in the company for the long term. This is a positive and bullish signal.

Last year, Warren Buffet bought his first IPO since 1956, in a company called SnowFlake (SNOW). Now, hearing that, would you be more or less confident of the offering?

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