Opening up to the world
What Is Going Public?
Opening up to the world is the process of selling shares that were formerly held privately and are presently accessible to new investors interestingly, otherwise known as a initial public offering (IPO).
How Going Public Works
At the point when a company "goes public," it is the first time the overall population has the ability to buy shares. The process of opening up to the world presents unique challenges and is best accomplished with a learned and experienced team in charge. An important member of said team is an accomplished securities attorney. Nonetheless, every member of the team has important responsibilities in directing the company through the IPO process.
The mandatory SEC S-1 filing does not necessarily incorporate all previous financial information, which is the reason doing extra research prior to investing in an IPO is basic.
Requirements for Going Public
1. Board Approval
Opening up to the world starts about a proposal to the company's board of directors by the management of the company. The proposal includes details and discussion on the company's past performance, objectives, business plan, and financial projections. Management then, at that point, recommends entrance into the public market. After careful consideration, the board of directors decides whether to push ahead.
2. Assemble Team
Upon endorsement, management starts assembling the IPO team, which usually starts with a securities legal counselor and an accounting firm.
3. Audit and Restate Financials
After endorsement, the company's financial statements for the previous five years are carefully audited and, if necessary, restated to consent to Generally Accepted Accounting Principles (GAAP). Certain transactions that are acceptable for private companies, such as some sale-leaseback arrangements, are then disposed of and financial statements are adjusted as needs be. The accounting firm takes the lead in this survey and adjustment step.
4. Letter of Intent With Investment Bank
Presently the company selects an investment bank and issues a letter of intent to formalize the relationship and diagram the investment bank's fees, offering size, price ranges, and different parameters.
5. Draft Prospectus
With a signed letter of intent, the securities lawyers and accountants prepare the prospectus. A prospectus is written to present to investors as both a selling document and as a legal disclosure document. A prospectus requires:
- Description of the business
- Explanation of management structure
- Disclosure of management compensation
- Disclosure of transactions between the company and management
- Names of principal shareholders and their holdings in the company
- Examined financial statements
- Discussion on company operations and financial condition
- Information on the expected use of offering proceeds
- Discussion on the effect of dilution on existing shares
- Breakdown of the company's dividend strategy
- Description of the company's capitalization
- Description of the underwriting arrangement
6. Due Diligence
The company's investment bank and accountants will inspect the company's management, operations, financial condition, competitive position, performance, and business objectives and plan. They also survey the company's labor force, suppliers, customers, and industry. Frequently, the results of the due diligence investigation will necessitate changes to the prospectus.
7. Preliminary Prospectus
A preliminary prospectus must be presented to the SEC and the important stock market regulators. State securities commissions may also be required to sign off. The SEC usually comments on the prospectus, regularly as requirements for extra disclosure or explanation.
8. Syndication
After the preliminary prospectus has been recorded with the SEC, the investment bank should assemble a "syndicate" of other investment banks, which will endeavor to sell portions of the offering to investors. Assembly of the syndicate frequently generates useful information that helps to narrow the share price range.
9. Roadshow
Company management and investment bankers frequently perform a series of meetings with expected investors and analysts. This roadshow is a formal presentation by management on the company's financial condition, operations, performance, markets, and products or services. The likely investors and analysts then, at that point, ask questions about the company.
10. Prospectus Finalization
The prospectus must be revised as per the comments of the SEC. At the point when the SEC declares the registration effective, the company can "go to print" with the prospectus.
11. Deciding the Offer
The day preceding registration becomes effective and sales start, the offering is priced. The investment banker will suggest a price for the company's endorsement, considering company performance, pricing of competitive offerings, roadshow outcomes, and general market and industry conditions. The investment banker will also make recommendations on the size of the offering, in consideration of capital required, investor demand, and control over the corporation.
12. Print
An accomplished financial printer, which has sufficient printing capacity and knows all about the SEC's regulations with respect to the use of graphics, receives the last prospectus for expedited printing.
Highlights
- Offering price is based on several still up in the air by the investment banker the day preceding the registration becomes effective.
- The original investment bank selected by the company will assemble a syndicate of different banks prior to presenting a roadshow to prospective investors.
- The last SEC approved prospectus is sent to print at an accomplished financial printer acquainted with the SEC's regulations.
- During the IPO process, numerous facets of the company will be checked on, prepared, and presented to the U.S. Securities and Exchange Commission (SEC) as part of its draft prospectus. During the vetting process this document will change and develop.
- The process of a company opening up to the world involves several important and sensitive steps that safeguard the company and possible investors.
