Now that you’ve made the decision to pursue an IPO and you’ve taken the active step towards becoming a public company, and being listed on the stock exchange – we thought we’d let you know what to expect while waiting for that big bell to toll.
We warn you, there’s a lot to take in here. But if you get to the end of this blog, and you realise that you need our help – then we’re just a phone call away.
- Kick-off Meeting
Before a company can formally start the IPO process, it needs to ensure it meets the required criteria for listing. So, the first step to making sure all of this goes according to plan is a well thought-out, strategic planning IPO Kick Off Meeting which will lead to successfully being listed on the company’s chosen stock exchange.
During this phase, there are a number of things that you’d need to consider, which could include:
- Board approval: After the management formally accepts the proposal, the IPO process can start.
- Forming an IPO Team: The management will need to find candidates for the roles required to fulfil an IPO, including internal management, lawyers, counsel, underwriter, accounting firm, and nomad (If listing on LSE).
- Timelines: Once the IPO Team has been assembled, timelines and guidelines will need to be established for the whole of the project, including any deadlines and potential risks that could arise.
- Selection of an Investment Bank: The IPO team will hold responsibility in listing the company on the stock exchange. Handling all the key processes such as drafting the prospectus and underwriting the IPO. Key Management will look to the team for advice on the pricing of shares, as they will have performed extensive research into the market and future forecasts. Doing this whilst adhering to all regulations and legal rules.
- Document Preparation and Due Diligence
Once the planning phase of IPO has ended, the first steps can be made towards submitting an application to the chosen stock markets register of companies, announcing the intention to float. This may be the SEC (U.S. Securities and Exchange Commission) or UKLA (United Kingdom Listing Authority). The process is started with a submission of a Draft Prospectus which includes details of the company and its intent to list on the stock exchange. This information includes:
- Description of the Business and its management
- Information of Industry Trend and risk factors.
- Management Discussions
- Financial Information
- Intend use of proceeds from listing
- Dividend Policy
- Who can currently apply for shares
The drafting of the prospectus document can be a very technical and time-consuming process, requiring a great deal of time from the whole IPO team because of its complicated nature and technical needs. During this process, it’s easy for the timeline to fall behind. It is, therefore, critical that the team understand the necessary requirements to meet deadlines and stay on schedule.
Due Diligence: The Prospectus Draft will need to be checked to ensure that it backs company performance and its market position. This will include the review of industry comparisons, facility sites, legal documentation, financial reports, tax returns, director information and any other business related documents. This is to ensure that the draft is truthful and accurate before submission to the Registrar of Companies.
Due to the nature of the phase, it is likely alterations will be amended to the Prospectus Draft before its first submission. During this time, a Pathfinder Prospectus or “red herring” is also commonly issued, which outlines an indicative price range and the same information as the IPO prospectus. This gives the underwriters an opportunity to understand the current demand for shares. Only the Final Prospectus outlines the finalised details including the price shares will be sold.
Letter of Comments: When the Prospectus Draft is submitted to the registrars of companies, it will be reviewed by various members of staff with financial backgrounds. This may include attorneys, accountants and financial analysts. The registers have 30 days to review the prospectus draft, giving feedback and making comments, from which the draft will need to be altered. Only once the Registrars have found no errors or have any further questions, it will declare the prospectus “effective”, allowing the company to commence with its selling efforts.
Preliminary Prospectus: Now the company has approval from the Registrars it can send out the preliminary prospectus to potential investors that have shown some interest, announcing its intention to list on the stock market. This is done in an effort to form a collective of investment banks, known as a ‘syndicate’, that will deliver the initial offering of shares to the public.
Roadshows: Members of the board will attempt to rally interest at meetings known as “roadshows”. The IPO Roadshow process involves key members of management making presentations about the company, highlighting the contents of the prospectus, and then answer any questions that investors may have.
Tombstone Ads: ‘Tombstone Ads’ is another marketing technique used by companies making an initial public offering. These are used as an announcement for the company that is issuing shares for sale, often mailed to investors who already own securities. The Tombstone outlines the number of shares available, the date they can be brought, how they can be purchased and any existing syndicate members.
This process usually lasts around two weeks. During this period, private investors can place orders with the brokers for shares, without knowing the final price of the shares or the final allotted amount that will be received. In the case of high demand, the process may end earlier than anticipated. Once the deadline has passed no more orders can be placed. If a cash investment has not been made by this time, then the order will not be fulfilled by the broker.
Allocation and Placing: The company and underwriter need to establish a price and the set amount of securities that will be offered. The finalised price will be determined by a number of factors, such as current market conditions, company performance, the interest shown on the “roadshow”, and the current economic climate. In the “Basis of Allotment”, the number applications from investors is shown. This will form the basis which the final allotment of shares and what they will be sold at.
In the case that the offer is oversubscribed, potential investors may not be able to gain the proportion of shares they initially wanted. In that case, investors will receive a smaller amount of shares than anticipated and will be refunded the difference. Some of the offered shares may have a minimum holding period. These are usually held by key members of management or employees.
When the price and allotment are finalised, shares can be exchanged for the correct cash amount and released into the investor accounts on the first day of trading.
The company’s shares will then be on the market at the set offering for around 1 week before the closing of share sales to the public, known as ‘unconditional full trading’ or market admission. Giving shares the ability to unconditional be traded on the stock exchange. This is only if the IPO has the involvement of the public and it’s not completely privately invested. At Closing the shares are delivered to investors, at the pricing of the offering. It is then the duty of the underwriter to issue the various documents to these shareholders who bought shares.
Private Investors who have shown interest in IPO shares may choose to buy at the initial offering price, to then sell the shares immediately to make a quick profit during early trading, known as ‘Stagging’.
If the IPO goes to plan, the company will make the transaction from Private to Public and in the process gain the necessary funds to fulfil its future plans.
We know – it can be a lot to take in. So why not just let us work with with you and walk you through the process. Get in touch with us today.