# The Anatomy of IPOs

It makes sense to start with a personal answer to the question of why companies go public. In my experience, there are three main reasons driving companies to an IPO. In this post, instead of repeating the surface-level information anyone can easily find, I want to share how I interpret the underlying structures, ownership balances, use of funds, and operational strengths from an investor’s perspective.

## IPO Structure and Share Sales

We need to carefully analyze the three drivers behind IPOs. The first is to achieve growth alongside a push for transparency and corporate governance. Especially in the recent high-interest-rate environment, securing an interest-free source of capital to accelerate growth momentum is a highly sensible strategy. I wish every company acted with this mindset, but in my view, only about a quarter of the companies listed on Borsa Istanbul actually fit this description. While we might look like a massive exchange with around 600 listed companies, the unfortunate reality is that many of them lack real substance.

The second reason is an urgent need for cash arising from unsustainable debt. Over the last three to four years, it feels like almost every company wanting to go public has been driven by this exact issue. This leaves us investors with the responsibility of making two critical assessments: *Is the high debt a result of poor management, or is it an external shock brought on by cyclical conditions?* There are plenty of companies that chose to grow aggressively to keep up with demand during high inflation, assuming low-interest loans wouldn’t pose a problem, only to see their projections collapse when sudden interest rate hikes and shrinking demand hit. A significant portion of recently listed companies seem to be facing this exact predicament.

The third reason comes down to IPOs built entirely around taking advantage of less-informed market participants. While some don’t start out with this intention, they eventually realize they can’t break out of the debt cycle and try to orchestrate an exit by gradually dumping their shares. Others are simply trying to cash out and run by taking their already bankrupt companies public—selling a worthless asset for a premium to secure a profit for themselves.

As an investor, I only find IPOs driven by the first two reasons worth considering. Since transparency- and growth-oriented companies have clear goals, it makes more sense to track their financials and build positions at reasonable entry points. The difficult and risky part is analyzing highly leveraged companies and trying to predict exactly when their financials will turn a corner.

One of the most critical aspects here is the management and ownership structure. When evaluating the post-IPO ownership breakdown, I look closely at how much equity the founding partners—the ones who grew the company over the years—are giving up. From a rational standpoint, no one wants to completely liquidate or significantly slash their stake in a winning, thriving business. This is why **the balance between capital increases and secondary share sales** is vital. Unfortunately, share sales by existing owners make up a massive chunk of today’s IPOs. Weeding out the founders who view the company merely as a cash cow is absolutely essential for me to make the right investment decisions.

## Use of Proceeds and Cash Needs

On the financial side, one of the first places to look is the use of proceeds report. When analyzing the allocations in the report, I treat the portions earmarked for financial debt and working capital as essentially the same thing. Under normal circumstances, companies plan and structure their financials based on future projections. A healthy cash flow should already generate enough liquidity to cover working capital. If a company feels the urgent need to raise extra cash just to fund its day-to-day operations, it often signals an issue in the treasury or cash flow. That is why I lump the debt repayment and working capital line items in the use of proceeds report into a single category: **debt reduction**.

Fundamentally, the proceeds can go toward three areas:

* Investment for growth

* Modernization

* Debt

As investors, our job is to question how realistic the distribution between these three line items actually is. The initial impression we form about the company’s management quality and intent serves as a guide for how much we can trust these figures and commitments.

## Operational Structure and Growth

It is essential to thoroughly understand what the company does, its structure, and its industry. There are highly valuable businesses in our country, but the vast majority are not publicly traded. Data showing that only about 70 of the ISO 500 (Istanbul Chamber of Industry top 500) companies are listed on the exchange indicates that business owners are generally reluctant to share their cash-generating engines. It is natural for any business owner to think their work is qualitatively vital. However, as investors, we must strip away this biased perspective and analyze the company with a rational mind.

What exactly does the company do? Does it generate high added value from this business? Where does it stand in its sector domestically or globally? Where does it provide its manufacturing or services? Basic questions like these make it easier to grasp the framework. We must remember that even though we might feel we are picking a company within a deeply intricate landscape, it is vital not to lose sight of the macro picture or get trapped in too narrow a scope.

## Debt, Financials, and Analysis Dynamics

Once I establish the future perspective, I dive into the financial reports to evaluate the past and the present. For a newly listed company, I broadly check whether the financial structures match the stated use of proceeds and assess the overall health of the business. By tracking historical growth on the balance sheet, I analyze the debt; by reviewing profitability on the income statement, I weigh whether that debt is sustainable. On the cash flow statement, I focus on the working capital section and try to make sense of financial income and expenses. It is crucial to track financial income and expenses not just through cash flows but also on the income statement, linking them back to the balance sheet with the understanding that they stem from debt. If the company’s structure and value-added generation fail to make a positive impression on me, I don’t bother digging too deeply into the footnotes.

No matter how deeply we want to analyze newly public companies, we frequently encounter management structures in Borsa Istanbul that lack corporate governance and can barely be considered semi-professional. Owners who have brought their companies to a certain level purely due to temporary tailwinds or favorable local conditions often drag their businesses into a mountain of debt through poor choices—or simply stagnate—when they lack the corporate vision to take things further. This becomes even clearer when you look at the growth performance over the last decade or more for about 400 out of the roughly 600 publicly traded companies. Because of this, I treat my routine equity research and my IPO analysis as two entirely different research frameworks.

## Overall Assessment

At the end of this entire review process, if I encounter no red flags regarding management, corporate structure, or financials, I add that company to my list of viable mid- to long-term investments. Unfortunately, the number of companies meeting these criteria rarely exceeds one or two a year. As for the remaining IPOs, if I generally like their structure and management, I keep them on a separate watchlist to monitor their progress over the next few years.

Finally, I want to add a brief note: I prefer not to write out the entirety of my deep market research and detailed corporate analyses here in long-form. Because these evaluations contain an immense amount of data and personal notes, turning them into comprehensive articles is a massive time commitment. For now, I find it more practical to share the core themes on my mind as bullet points on the blog. This is the general framework of how I view IPOs; you will see the practical reflections of this approach more clearly in my upcoming analysis posts.

LEGAL DISCLAIMER: This content does not constitute investment advisory services. Investment advisory is a personalized service provided based on an individual’s risk-return profile, financial standing, and investment objectives. The information, commentary, and assessments provided herein are prepared solely for general informational purposes and should not be construed as investment recommendations or guidance. This content may not align with the reader’s financial position or risk-return preferences; therefore, investing based solely on this information may not yield the expected outcomes.