IPO, or Initial Public Offering, describes the act of making a private company public for the first time. During the IPO period, individuals have their first opportunity to buy shares of the company. It also provides private investors with an opportunity to break ties with the company, allowing them to take a share of the profits along with them.
The IPO process is hugely important, as it stands to provide the company with a seismic increase in capital. And, of course, the more capital the company has, the more it can expand its operations, and the more revenue it can bring in.
Now, what does the IPO process entail? Generally speaking, it involves the following:
The Company Chooses an IPO Underwriter
First and foremost, the company must choose an IPO underwriter. This involves getting in contact with the best investment bank in the area and explaining the intention to launch an IPO. The bank will then provide advice on the process while facilitating its underwriting services.
The Company Goes on a Roadshow
Next, as a means of gaining interest from the public, the company goes on a roadshow. This is essentially a tour of various large cities in which the company and its IPO underwriter give presentations to analysts, hedge fund managers, and investors.
A successful roadshow will get the public excited for the IPO, allowing for mass investment on launch day.
The Company Submits IPO Regulatory Filings
Once the issuing company has chosen an underwriter, it will work with the underwriter to draw up the necessary IPO regulatory filings. These include an engagement letter, a letter of intent, an underwriting agreement, a red herring document, and a registration statement.
After the SEC has received these filings, it will assess the information contained within to determine whether the IPO is approved. To better acquaint yourself with this important step, learn about UCC lien searches right now!
The Shares Are Priced
Next, the issuing company and underwriter work together to decide on the quantity and price of shares. To determine this, they consider a variety of factors, including the level of success that was had on the roadshow as well as the current state of the market economy.
Generally speaking, for the IPO, shares are underpriced. This helps ensure either the full subscription or oversubscription of shares. When public investors oversubscribe on shares, the issuing company has the leverage to sell even more shares, and at a higher price to boot.
The Shares Are Released
You’ve done your due diligence on assessing the condition of your company. You’ve priced your initial shares. Now, it’s time to release those shares to the public, thereby launching the IPO. Your underwriter will handle the responsibility of listing the shares, making them available for public investors to purchase.
The Underwriter Engages in Stabilization
Once the initial shares are released, there’s a 25-day quiet period during which the underwriter has an opportunity to stabilize the stock. This involves buying back and/or selling shares as a means of getting individual shares to equal a desirable price.
There are a number of stabilization strategies utilized by underwriters. One of the most popular of these strategies is the greenshoe option.
Don’t Take the IPO Process Lightly
In the realm of business ownership, the IPO process is about as serious an endeavor as you’ll ever undertake. Getting this process right can launch your business to new heights, helping it become a major player in its respective industry.
So, before you release that new IPO listing, make sure to tend to all of the IPO regulatory filings. The future success of your business depends on it.
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