Before a company even considers an Initial Public Offering (IPO), it needs to know whether it is in a position to do so. To get to this decision, a business needs to go through a full business audit or review in order to understand all the potential issues that an IPO, and the process of “Going Public” causes, and whether the business will be able to deal with the issues as they arise.
In order to understand the IPO process, it’s necessary for you to get to grips with the many types of IPO that a business may pursue and can use either type, or a combination both, of what we call a Fixed Price or Book Building methods. Here’s what that means:
Fixed Price IPO methods
When companies decide to use the Fixed Price method, the company that is going public determines a set price at what its shares are offered to investors. The investors know the share price before the business goes public. The actual demand, and popularity of the company’s shares, will only be known once the issue is closed. The fixed price or issue price is disclosed in the final Prospectus, which will go into detail regarding all the variables that justify the price. The Final Price, however, may not be in the draft prospectus as factors that determine the price may change during the period from filing to going public.
Book Building IPO methods
In this method, underwriters try to establish a price which to offer the IPO, based on interest shown by private investors. Book building involves ‘building orders’ from these investors based on the number of shares requested and at what price they are willing to pay. In this case, interested investors need to registrar an interest before ‘closing of the book’. Potential Investors are not made aware of the price in advance, and only an indicative price range is known. Once this happens the underwriter will establish an initial selling price for the offering.
Other ways to Trade Publicly without pursuing an IPO
• Reverse Takeover – ‘RTO’
This is where it may start to sound a little more complicated. The Reverse Takeover method is a type of merger and is when a private company buys enough shares in order to qualify as the controller of the new publicly traded company. The private company then uses its shares in the private company to exchange for shares in the public company. At this point, the private company has effectively become a publicly traded company. A Reverse Takeover is also called a Reverse Merger or Reverse IPO.
One Advantage of this method is the fact the expensive fees associated with the IPO process are not necessary – thereby avoiding regulatory requirements and longer timescales involved with performing an IPO from the start. But in contrast, by going public in this way, the company does not gain any funds through the transaction and the name of the company performing the reverse IPO becoming the name of the publicly traded company.
• Venture Capital Backed
This type of listing generally involves the selling of shares in a company that has previously been funded primarily by private investors, to the public. This route is often known as an “exit strategy” for initial private investors to gain money out of what they invested in the company as it involves selling shares to the public as an alternative to being acquired by another company.
If you know it’s time to talk growth, then make sure you have a team on your side who have been there and done that – and who will support you through the entire process. Get in touch with us today.