What exactly is general public distribution?
The term “general public distribution” in finance refers to a private corporation entering the public market by selling its shares. This differs from traditional public distribution, where shared sales primarily target institutional investors.
General Public Distributions
An initial public offering (IPO) is the sale of a private company’s shares to the public for the first time. An IPO directly sold to a vast pool of investors, including small retail investors or huge funds, is considered a general public distribution. It would be a typical public distribution if the IPO targeted considerable, sophisticated investors like investment banks, hedge funds, and pension funds.
Investors who purchase shares through an IPO are members of the leading market. In the primary market, you buy securities from the issuer. In contrast, the secondary market lets you buy securities from other owners who bought them from the issuer or another owner. Most transactions occur in the secondary market, making IPOs unusual and keenly monitored.
Company-wise, there are various reasons to go public. They may seek finance through additional facilities, recruiting, R&D, or acquisitions to expand. IPOs are a type of equity financing.
Sometimes, a firm may IPO to enhance liquidity for early investors wanting to cash out. Potential benefits include enhanced status, credibility, and creditworthiness associated with publicly listed enterprises.
Real-World General Public Distribution
Technology giant XYZ Corporation is considering how to fund its development. Managers believe creating new offices overseas and recruiting new staff may grow their international consumer base. Additionally, they see potential in acquiring minor rivals to enhance their intellectual property and human resources portfolio.
XYZ chooses IPO equity finance for fundraising. To decide, people must choose between a general or traditional public distribution. Retail investors control more of the former’s issued shares than institutional investors.
However, the two forms of IPOs may provide similar medium- and long-term results. The secondary market is where investors exchange shares after they sell them in the primary market.
Consider institutional investors receiving shares but ordinary investors not buying. Retail investors might offer to buy such shares from institutional investors in the secondary market.
If retail investors buy most of the shares, but institutional investors buy more, retail investors can sell. Thus, the secondary market should allocate XYZ’s stock to its most valuable owners, regardless of the IPO’s winner.
Conclusion
- A broad public distribution sells privately owned shares to public investors for the first time.
- It lets privately owned firms go public, helping them access funds and liquidity for early investors.
- Investors exchange newly issued shares in the secondary market after selling them.
