Direct Public Offering (DPO)
A company pursues a direct public offering (DPO) to raise capital by marketing its shares directly to its own customers, employees, suppliers, distributors and friends in the community. DPOs are an alternative to underwritten public offerings by securities broker-dealer firms where a company's shares are sold to the broker's customers and prospects.
Direct public offerings are considerably less expensive than traditional underwritten offerings. Additionally, they don't have the restrictions that are usually associated with bank and venture capital financing. On the other hand, a DPO will typically raise much less than a traditional offering.
Trading pattern of DPO
The corporation may sell securities once completing a DPO by direct methods; telemarketing or mail outs but may also develop a brokering system to assist in the day to day management of such securities
Like an initial public offering (IPO), corporations seeking a DPO must be in full compliance with the local securities branch of government. With that said ,a DPO for all intents and purposes is a publicly traded company with a symbol and is registered as a publicly traded company. Individuals and corporations may purchase and sell its stock accordingly. Companies seeking a DPO must provide-
- a prospectus to its prospective and existing shareholder’s .
- publicly available financial reports.
- accurate and up to date stock information available to the public.
Difference Between DPO and IPO
The difference between a DPO vs. an IPO is that in an IPO an underwriter buys the securities to resell to their prefer clients; usually the public does not have a direct opportunity to purchase shares. In a DPO the securities are sold directly to the public, without an underwriter (but sometimes an underwriter is used to help sell some of the shares on a best effort basis.
Advantages of DPO:-
- Avoid many of the costs associated with "going public" through an initial public offering (IPO).
- DPOs, private placements of stock, and other exempt offerings provide small businesses with a quicker, less expensive way to raise capital.
- The primary advantage of DPOs over IPOs is a dramatic reduction in costDPOs also can be completed within a shorter time frame and without extensive disclosure of confidential information
Disadvantages:-
- The amount that a company can raise through a DPO within any 12-month period is limited.
- In addition, the stock is usually sold at a lower price than it might command through an IPO.
- Stock sold through exempt offerings is not usually freely traded, so no market price is established for the shares or for the overall company.
- This lack of a market price may make it difficult for the company to use equity as loan collateral.
- Finally, DPO investors are likely to demand a larger share of ownership in the company to offset the lack of liquidity in their position.
- Investors eventually may pressure the company to go public through an IPO so that they can realize their profits.
