Primary markets — IPO, direct listing, SPAC

When a company sells new shares to investors, it is using the primary market. Once those shares are owned by the public and trade between investors without new money reaching the company, they are in the secondary market. The same physical share certificate (now nearly always a book entry rather than paper) flips between owners many times in its life, but only the original primary issuance funds the company directly.

The IPO process

A traditional IPO involves a sequence of steps that can take 6-18 months from board decision to first trade:

• Selection of underwriters: company hires a lead investment bank (often two or three co-leads), with smaller banks joining the underwriting syndicate.
• Due diligence and S-1 / prospectus drafting: extensive legal, accounting, and business review, culminating in the prospectus filed with the SEC (or local equivalent).
• Roadshow: senior management visits institutional investors over 1-2 weeks, marketing the offering and answering questions.
• Bookbuilding: underwriters take indications of interest from institutional buyers at various price points, building the 'book' of demand.
• Pricing: the night before listing, the lead underwriters and the company agree on the final offering price within the prospectus range (or sometimes above or below).
• Allocation: shares are allocated to bookbuilders, typically concentrated among long-term institutional holders the company wants on its register.
• First trade: shares open on the exchange the next morning. A successful pricing leaves the stock trading 10-20% above the offering price at the open — the 'first-day pop' that historically rewards bookbuilders.

The greenshoe / over-allotment option

The underwriters are typically granted an option to sell up to 15% more shares than originally offered (the 'greenshoe', after the first deal that used the mechanism). They use the greenshoe by going short 15% at pricing. If the stock trades below the IPO price, they buy in the market to stabilise (providing price support, with profit to the syndicate). If the stock trades above, they exercise the greenshoe, taking additional shares from the company at the IPO price. Either way, the mechanism is asymmetrically profitable for the bank and offers post-listing support.

Direct listings

In a direct listing, existing shareholders sell into a public listing without an underwritten primary issuance. Spotify (2018), Slack (2019), Coinbase (2021), Roblox (2021) used this route. Advantages: no underwriting fees (typical IPO 5-7% of proceeds), no lock-up restricting insider selling, no greenshoe. Disadvantages: no capital raised for the company at the listing; pricing is less predictable; bookbuilders' price-support role is absent.

SPACs — rise and fall

A Special Purpose Acquisition Company is a publicly listed shell company that raises capital with the intent to identify and acquire a private business, taking it public through the merger. SPACs surged spectacularly in 2020-21, raising over USD 250 billion in 2021 alone. By 2023-24 the structure had collapsed: over half of post-SPAC public companies traded below the SPAC's initial USD 10 per share redemption price; sponsors faced fraud lawsuits; redemption demands made deal economics worse. New SEC rules in 2024 substantially tightened SPAC disclosure. The structure persists but at a fraction of its 2021 scale.

Lock-up periods

IPO insiders (founders, employees, early investors) are typically locked from selling for 90-180 days post-listing. When the lock-up expires, supply hits the market and the stock typically faces a 5-15% short-term price hit. This is a known calendar event; sophisticated investors pre-position around it.

African equity primary markets

The Nairobi Securities Exchange (NSE Kenya) has seen limited IPO activity in 2020-25. Major recent listings: Acorn Holdings (REIT, 2021). Major attempted/withdrawn IPOs and divestments often reflect market conditions. The Johannesburg Stock Exchange (JSE) remains Africa's deepest equity primary market. The Nigerian NGX has had episodic large issuances (notably MTN Nigeria's secondary in 2021). Pan-African issuance often happens on the London Main Market or AIM, where the addressable investor base is larger.