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Why Creating Value with Restructuring is a Necessary Part of IPO

[dropcap]I[/dropcap]nitial Public Offering (IPO) is the process by which companies seek funding from the general public. Equity share capital is raised for the first time by a company through the IPO route. IPOs are also a method to reduce leverage for the company, as equity shareholders are effective owners of the company. Prior planning and investor relations are important steps to be taken before the IPO process begins.

Companies fall under additional scrutiny after listing on a stock exchange. Regulatory bodies such as SEBI (Securities and Exchange Board Of India), BIS (Bureau of Indian Standards), RBI (Reserve Bank of India) and RoC (Registrar of Companies) along with others monitor the activities of listed companies and track the share price movements as well. As the general public is invested in the stake of public listed companies, they have to undertake compliance efforts.

Raising capital through an IPO investment is not a simple affair as investors are well educated and often consult experts on the matter before making buying decisions. The past track record of the company and financial ratios, of the company, are studied in-depth by potential investors of an IPO. A comparison of targets with actual results on a periodic basis is also made.

Companies must create sustainable value for investors in the pre-IPO stage. Often corporate restructuring, a change in management personnel or style, strategic sales or buyouts, joint ventures, or other business alliances are common before an IPO is raised by a company. There are several reasons for this trend:

Every company seeks to create value through its operations for its stakeholders- shareholders, creditors, customers, regulators, lenders etc. For a company seeking to raise money from the public by an IPO, this is even more important. A business may well sabotage itself if it takes no steps to enhance shareholder value by strategic goal realignment, operational changes and a general restructuring of the business.

Restructuring is part and parcel of the efforts taken by a company to differentiate itself from the competition. It calls for a strategic change of management vision, deeper goal orientation and alignment to the expansion goals of the company. The top management of the company raising money through an IPO is key to the value creation efforts of the company. They are the drivers of the strategic planning and execution of those plans.

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