Initial Public Offering (IPO)

An initial public offering (IPO) is the first-time selling or issuance of a firm’s securities (such as stock) in an open, public market. Examples of open, public markets include the New York Stock Exchange, the American Stock Exchange, and the NASDAQ. The offering of these new securities is referred to as “going public.” The trading of IPO stocks is referred to as the new issues market. Through an IPO, health care firms may be able to raise capital to which they previously did not have access. Recent examples of health care IPOs include Applied Imaging Corporation, Laser Vision Centers Inc., and Universal Hospital Services Inc.

To issue an IPO, an organization must first register with the Securities and Exchange Commission (SEC). The SEC, however, is concerned not with the merits of the offering (is it a good investment?), but rather with the adequacy of the information disclosed to all potential investors. The SEC requires firms to disclose information that privately held firms may not otherwise have to make known. This information includes its business and associated business risks (including its competition), audited financial statements, its officers’ and directors’ identity and their compensation, material transactions between the company and its officers and directors, material legal proceedings involving the company or its officers and directors, its securities distribution plan, and the intended use of the proceeds of the initial public offering. Not until the SEC declares its registration statement effective can a firm sell securities associated with its IPO in an open, public market.