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How to buy an IPO in Australia

ASR Team

Self-directed investors have relied on Australian Stock Report for over 20 years to provide them with comments on the Australian stock market and useful insights. We provide Australian investors with market news and research to make decisions that would help manage their savings, build a sustainable income, and potentially achieve capital growth.


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The enigmatic Initial Public Offering (IPO) is often seen as either a huge risk or a potential profitable investment. While it may seem simple, there are many parts to this process that are often misunderstood by potential investors and companies alike.

This extensive guide will take you through what an IPO is, how it works and how to buy IPO stocks in Australia.

What Is an Initial Public Offering (IPO)? 

An IPO refers to when a private corporation is going through the process of offering shares to the public in a new stock issuance for the first time. An IPO enables a company to increase equity capital from investors.

This means that investors are now able to participate in the offering and invest in said company. In addition to this, the transition from private company to public enables investors in the company to realise their gains as an IPO often includes a share premium for investors.

How Does An IPO Work In Australia? 

The process of an  IPO is usually quite similar across the globe, however there are some slight process differences in each economic region. Here is the process and steps to an IPO in Australia:

The Process 

Pre-IPO, a company will have a small number of early investors- these can be the founders, family and friends or even professional investors such as venture capitalists and angel investors. When a company believes it's strong enough to handle the ordeal of Securities and Exchange Commission (SEC) regulations, it can begin the process of advertising its interest in going public.

When a private company decides to go public and issue stock, it wants to raise its capital and make shares available for the public to purchase. The IPO is then underwritten by an investment bank, broker-dealer or a group of investment banks. They buy the shares from the company to sell and distribute among the public to investors that want them.  When a private company is converted to public ownership, the investors' or shareholders' shares are worth the IPO price in the public market.

Steps To An Initial Public Offering 

  1. Proposals: Underwriters present their proposals and discuss their services, offering price, amount of shares and a time-frame until market offering.

  2. Underwriters are chosen.

  3. IPO teams are formed: these comprise of underwriters, lawyers, certified public accountants and Securities and Exchange Commission experts.

  4. Documentation: IPO documentation must be drawn up, with the main document being the S-1 Registration Statement.

  5. Marketing and updates: Marketing materials are created for pre-marketing of the new stock issuance.

  6. Board and processes: A board of directors must be formed and processes that are reporting auditable financial and accounting information every quarter must be monitored.

  7. Shares issued:

    The IPO date is confirmed and released to the public. Finally, capital from the primary issuance to shareholders is received as cash and recorded as stockholders' equity on the balance sheet.

Advantages and Disadvantages of an IPO 

While the main reason for a company to go public is to raise capital for the business, there are advantages and disadvantages to an IPO for the company.


Main advantage: the company gets access to investment from investing public to raise capital

      • Facilitation of easier acquisition deals or share conversions

      • Increase in the company's exposure, reputation and public image

      • Additional future funds can be increased through secondary offerings

      • Liquid stock equity participation can attract better management and more-skilled employees.

      • IPOs can give a company a lower cost of capital for both equity and debt


Main disadvantage: IPOs are expensive- costs will increase significantly for legal, accounting and marketing sects of the company

      • Management for reporting increases in time and attention

      • There is a loss of control and stronger agency problems

Investing In An IPO 

Investing in an IPO is a lengthy process. It involves an immense amount of research and regular news-reading to keep up to date on the IPO process. If you're hoping to invest in an IPO, making sure that the IPO is priced appropriately, involves a large amount of time and effort.

IPO Price Discovery

The price of an IPO is usually set by the underwriters during the pre-marketing process. The IPO price is based on the valuation of the company using fundamental techniques. Discounted cash is the most common technique, which is the net present value (how much the investment is worth throughout its lifetime, discounted to today's value) of the company's future cash flow. Underwriters and interested investors look at this value on a per-share basis.

For possible new investors, it can be quite hard to analyse the fundamentals and technicals of an IPO issuance.

While watching news headlines is a great way to get information on future IPO's, the best way to learn about a company is the prospectus. The prospectus provides specifics of the deal, commentary from the management team as well as valuable insight into the quality of the underwriters. This information becomes available as soon as the private corporation or company files its S-1 Registration.

Investors building interest can follow developing headlines and other information along the way to help supplement their assessment of the best and potential offering price.

How To Buy IPO Stocks In Australia

For individual investors, getting the chance to buy an IPO stock is actually quite difficult. Due to the covertness of the IPO process, IPO stocks are usually bought up by big institutional investors.

This is because they're usually the first to get access- institutions that participate in the Initial Public Offering often do business with the brokers that underwrite the deal. This kind of relationship can put them in prime position to access shares in the IPO. Sometimes if you have an account or relationship with the broker, you may be able to get a chance to buy an IPO.

Once the stock has finally gone public and is trading on the stock exchange, smaller investors and professionals have the chance to buy into its shares. Waiting for the stock's debut is often the best strategy when it comes to newly public companies.

What To Consider Before Investing 

Before investing in an IPO, reading the prospectus is a must. This is to help you understand if the stock or share price is worthwhile, but also if the IPO will be a sound investment. When reading the prospectus and other resources like news updates, consider the following:

      • the long-term growth prospects

      • the anticipated strength of the balance sheet after the IPO has gone live

      • the expected return for the company

      • the broader industry and community that the company exists within (technology, mining etc.)

In the end, making the decision to invest in an IPO comes down to how you like to invest. If your current investment strategy, which should include your personal circumstances, risk tolerance and investment goals, leans toward investing in new and growing companies, then an IPO potentially may be a great option.

Risks Of Buying An IPO 

Individual investors should definitely weigh up the pros and cons of investing in a growing and newly public company before buying an IPO stock.

Here are the biggest risks of an IPO:

      • After the first-day increase, the stock may fall. While the first day 'pop' of IPOs on the stock market can be legendary, the future growth is not always as epic. After the initial honeymoon period, if the business is not bringing in significant returns or is not stable, the stock may fall significantly. On the stock exchange, there are no guarantees.

      • IPOs require research and analysis. If you want to buy an IPO, the time and effort involved in researching and analysing the company's business model is significant. Making sure that future plans are secure and there is stable profit is also a necessary evaluation to make. If you are a passive or in-experienced investor, then an IPO stock may not be the best investment for you.

      • Don’t assume that an IPO is profitable — or ever will be. Unfortunately, many companies come to market without a clear plan to generate sustained profits. This is why research and analysis must be undertaken even before the IPO is on the stock market.

      • A limited operation history can make the company hard to evaluate. New IPOs often have limited histories, so it can be difficult to make assessments on their value. This is particularly true when a company is in a nascent or fledgling industry, such as Artificial Intelligence and electronic vehicle companies tend to be.

      • Dual share classes may privilege insiders.

        Sometimes the more popular stocks on the stock exchange limit the power of external investors. This is why it can be so difficult to get the chance to buy an IPO in the first place. Typically, investors are offered a share class that does not have the same voting rights as the shares held by insiders, such as company founders, even if both share classes have the same economic rights.

Steps For Buying IPO Stocks (Before Trading)

Getting access to an IPO before it begins trading can be quite challenging. Here are the best steps to take:

      1. Create an online account with a broker that has IPO access. Some brokers and brokerage houses offer IPO trading, so setting up a relationship with them is a great option.

      2. Meet the eligibility requirements. You will need to meet certain eligibility requirements that can vary from broker to broker after setting up an account. You may need to have a certain amount in assets with the broker or you need to be a wholesale investor.

      3. Request shares. After meeting the eligibility requirements, you must request shares from the broker. While it is not guaranteed that you will receive the shares just because you request them, there is a solid chance it may occur.

      4. Put in an order. The trade order is known as a conditional offer to buy, which won’t become active until the IPO is priced. You’ll have a chance to confirm or change your order after pricing has been set but before the window closes. However, you won’t be able to buy more shares than you requested.

IPO vs. Direct Listing

IPOs and direct listings seem to be quite similar on the surface- they both allow companies to make their shares available to the public. However, there are some key differences between the two methods of publicising a company, including:


      • The companies rely heavily on intermediaries including investment banks and brokers to guide them through the IPO process.
      • An IPO involves the creation of new shares to be sold to investors. This increases the total number of outstanding shares in the company.
      • A large portion of the money made from an IPO will go directly to intermediaries as service fee.

Direct Listing

      • No new shares are created in a direct listing, however existing investors in the company agree to sell a portion of their shares to the public.
      • Direct listings do not use any intermediaries, meaning they can usually avoid the fees associated with an IPO.
      • By avoiding intermediaries, direct listings run the risk that the share sale falls flat due to a lack of support or expertise.

Tracking The Performance of Your IPO Stocks 

An IPO share requires a lot of work, even after you've actually bought the stock. Tracking the performance of the shares should be closely watched by investors, as they may be overly hyped by the investment banks involved, which can lead to initial losses. There are a couple of factors that may affect your return, including:


If your stock takes a deep down-turn after a couple of months, it may be because of the expiration of the lock-up period. A lock-up period is created from a lock-up agreement made by underwriters for company insiders including officials and employees.

This agreement prohibits company insiders from selling any shares of stock for a specified period. This period can range anywhere from three to 24 months. Performance may be affected when lockups expire because all the insiders are permitted to sell their stock. The result is a rush of people trying to sell their stock to realise their profit. This excess supply of stocks can put severe downward pressure on the overall stock price.

Waiting Periods

Some investment banks include waiting periods in their offering terms. This sets aside some shares for purchase after a specific period. Similar to the effect of a lock-up, the price may increase if this allocation is bought by the underwriters and decrease if not.


Flipping is the practice of reselling an IPO stock in the first few days to earn a quick profit. It is common when the stock is discounted from the beginning and increases dramatically on its first day of trading. If you are planning on keeping your IPO share as a long-term investment, flipping may affect its performance.

Tracking IPO Stocks

A tracking stock is when an already existing company spins off a small part of its business as a standalone entity. The division of a company into individual entities, while it creates similar IPO shares, are a little different to the traditional IPO investment.

A tracking stock may be an interesting investment opportunity. You will usually receive a lot of information and knowledge about the parent company and its stake in the divesting company. This makes your research much simpler, and the decision to invest less challenging to make. However, spin-offs may experience less initial volatility because investors have more awareness.

Final Takeaways

There are many ins and outs to investing in an IPO. The challenge of getting the chance to buy this type of share, along with the added effort needed for research and performance tracking will deter many investors.

However, an active investor that takes a hands-on approach to their wealth management may find that an IPO maybe perfectly suited to their investment goals and may help diversify their investment portfolio.

At Australian Stock Report, our Advisory Team of experts can guide you through investing in an IPO stock and provide you with investing resources.. We distribute numerous research reports and software tools from our partners to help you make stable and reliable investment decisions.



Can Anyone invest in an IPO? 

The simple answer is yes, anyone can invest in an IPO. However, it can be quite difficult to pull off, as there is usually more demand than supply of IPO shares once a company decides to go public. Some of the IPOs offered are offered to wholesale investors only.

What Is the purpose of an IPO? 

The essential purpose of an Initial Public Offering is to act as a fundraising method for large companies. By selling its shares to the public for the first time, a company will receive immense return in a short period of time.

Is an IPO Considered a good investment? 

IPOs are very popular among many different kinds of investors and gather sometimes attention from the media. Many investors choose to buy an IPO stock because of its volatile price movements. This means that an IPO can give huge returns, but also huge losses. A good investment in an IPO comes from a lot of research and solid judgement of the prospectus before buying the stock.

How is an IPO priced? 

When a private company decides to go public, it must list an initial value or share price for its new shares. This is done by the underwriters and investment banks that market the deal. The value of the company is mainly established by the company's fundamental business plan as well as its future projection or growth prospects.

How Long Before I Can Sell IPO Stock?

It is most likely that your IPO stock is held with a brokerage account. This means it may be sold at nearly any time either online or with a simple phone call. You can also often place a limit order, meaning you set the number of shares you wish to sell when it drops to a certain share price.


Australian Stock Report Pty Ltd ABN 94 106 863 978 AFSL 301682.  All rights reserved.

All information in this article is of general nature only; it is not intended or to be construed as an offer, solicitation or recommendation for any financial product and does not take into account your financial situation, objectives or needs. Before acting on the information herein you should consider whether it is appropriate for you in light of your personal circumstances. Where applicable, you should obtain and consider a Product Disclosure Statement, Prospectus or other relevant disclosure material and seek professional investment advice prior to making any decision to acquire or dispose of a financial product.  Investing in financial markets and instruments involves risks, including loss of some or all capital. The payment of income and the return of capital are not guaranteed. Past performance is not an indicator of future performance. Whilst the information presented herein is believed to be reliable and obtained from trusted sources, ASR does not make any representations as to its accuracy or completeness.

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