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Table of Contents
What is Floatation?
Floatation (also spelled Flotation) represents the process by which a company raises capital by offering its shares to the public in a primary market. It is most commonly associated with Initial Public Offerings (IPOs) but can also include follow-on offerings.
Definition
Floatation is the method through which a company issues new shares to investors to raise capital, typically by listing on a stock exchange.
Table of Contents
- What is Floatation?
- Key Takeaways
- Understanding Floatation
- Formula (If Applicable)
- Real-World Example
- Importance in Business or Economics
- Types or Variations
- Related Terms
- Sources and Further Reading
- Quick Reference
- Frequently Asked Questions (FAQs)
- Is floatation only for large companies?
- Does floatation dilute ownership?
- What are the costs of floatation?
Key Takeaways
- Floatation helps companies raise substantial long-term capital.
- It involves issuing shares to the public through an IPO or similar method.
- It requires regulatory approval, underwriting, and extensive disclosure.
Understanding Floatation
Floatation is one of the most significant steps in a company’s lifecycle. It transforms a private firm into a publicly traded company, increasing visibility, credibility, and access to financing.
The floatation process typically involves:
- Choosing investment banks (underwriters)
- Preparing regulatory filings (e.g., prospectus)
- Valuing the company and pricing the offering
- Marketing the shares to institutional and retail investors
- Listing the shares on a stock exchange
This process enhances liquidity for existing shareholders and enables companies to fund expansion, acquisitions, or debt repayment.
Formula (If Applicable)
Offer Price Determination:
Offer Price = Company Valuation ÷ Number of Shares Offered
Market Capitalization After Floatation:
Market Cap = Share Price × Total Number of Shares Outstanding
Real-World Example
In 2021, Coinbase went public through a direct listing, a type of floatation alternative to an IPO. The listing provided existing shareholders with liquidity while allowing the company to access broader capital markets.
Importance in Business or Economics
Floatation impacts:
- Capital raising efficiency
- Shareholder liquidity
- Corporate governance and regulatory compliance
- Market visibility and brand reputation
It also helps deepen financial markets by expanding the pool of publicly traded companies.
Types or Variations
Initial Public Offering (IPO): Traditional method of going public.
Direct Listing: Shares listed without new capital raised.
Follow-On Public Offering (FPO): Additional shares issued after IPO.
Related Terms
- Initial Public Offering (IPO)
- Prospectus
- Market Capitalization
Sources and Further Reading
- U.S. Securities and Exchange Commission (SEC): https://www.sec.gov
- New York Stock Exchange (NYSE): https://www.nyse.com
- NASDAQ: https://www.nasdaq.com
- Investopedia – Flotation: https://www.investopedia.com/terms/f/flotation.asp
Quick Reference
- Floatation is the process of issuing shares to the public.
- Enables capital raising and improved liquidity.
- IPOs and direct listings are the most common methods.
Frequently Asked Questions (FAQs)
Is floatation only for large companies?
No—smaller firms can float through junior exchanges or alternative markets.
Does floatation dilute ownership?
Yes, issuing new shares reduces the ownership percentage of existing shareholders.
What are the costs of floatation?
Underwriting fees, legal costs, regulatory filings, and compliance expenses.
