What is DPO and how is it different from IPO?
19 January, 2025
Synopsis
In a DPO, the company sells its securities directly to the public.
Companies handle the offering process without underwriters and intermediaries.
DPOs also require a company to have a strong marketing and investor relations strategy.
A Direct Public Offering (DPO) is a type of IPO where the company sells its securities directly to the public without the use of underwriters or intermediaries. This can be a cost-effective and efficient way for companies to raise capital, though it might come with the trade-off of limiting their access to a broader investor base.
How is DPO different from an IPO?
While DPOs provide more direct access to the public market, IPOs provide the backing of underwriters and a more established procedural framework. Let’s look at some more differences between the two.
Process of Issuance
The process of issuance differs between DPO and IPO. In direct listings, a company directly sells its securities to investors, while in an IPO, underwriters play a crucial role in facilitating the sale of shares to investors.
Regulatory Requirements
Both DPO and IPO have certain regulatory requirements, but they differ in terms of scrutiny. IPOs generally undergo more rigorous regulatory scrutiny compared to DPOs. In contrast, DPOs typically face a less intensive regulatory process compared, allowing companies to navigate the regulatory landscape with potentially fewer hurdles.
Involvement of Intermediaries
DPOs eliminate the need or involvement of intermediaries. Instead, companies handle the offering process themselves, thereby reducing the associated costs and relying on their own resources. On the contrary, IPOs require the services of underwriters and involve higher expenses due to fees and associated costs.
Access to Retail Investors
DPOs are often more accessible to retail investors since they can directly participate in the offering without the need for intermediaries. In contrast, IPOs may initially lean towards institutional investors, with retail investors typically gaining access to the shares once they become available for trading on the public market.
Costs and Expenses
DPOs generally have lower costs compared to IPOs. By eliminating underwriting fees and other related expenses associated with intermediaries, companies can save significant costs in the DPO process.
Benefits and Drawbacks of DPOs
DPOs offer companies more control and flexibility over the offering process, enabling them to define their own terms and conditions. Additionally, DPOs can be a cost-effective way to raise capital and can help companies engage directly with retail investors.
However, DPOs also require a company to have a strong marketing and investor relations strategy and may not have the same level of marketing support as IPOs.
Overall, DPOs provide an alternative method for companies to access the public market, raise capital, and engage with a wide range of investors. By understanding the differences between DPOs and IPOs, companies can make informed decisions regarding their capital-raising strategies. Open a Demat account online with HDFC Securities today and experience easy access to your investments.
*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not an investment recommendation. Investments are subject to market risks and other risks.
