Unleash Your Company’s Potential: The Comprehensive Guide to Going Public
Going public is the transformative process by which privately held shares are made available to new investors for the first time, marking the milestone of an Initial Public Offering (IPO).
Key Takeaways
- Going public involves pivotal steps that safeguard the company and future investors.
- Throughout the IPO journey, multiple aspects of the company are scrutinized, prepared, and submitted to the U.S. Securities and Exchange Commission (SEC) within a draft prospectus, which evolves during the vetting process.
- The initial investment bank forms a syndicate of other banks before presenting a roadshow to interested investors.
- The finalized prospectus must adhere to SEC regulations and is meticulously printed by seasoned financial printers.
- The offer price is influenced by numerous factors, finalized by the investment banker just before the registration becomes effective.
How the Going Public Journey Unfolds
When a company “goes public,” the general public is granted its first opportunity to purchase shares. This exhilarating process is fraught with unique challenges and necessitates a skilled, experienced team. A critical team player is an adept securities lawyer, yet every team member carries significant responsibility in steering the company through the IPO. The essential SEC S-1 filing might not encompass all past financial information, so comprehensive research is crucial before investing in an IPO.
Vital Steps to Successfully Going Public
1. Obtain Board Approval
Going public begins with a proposal from the company’s management team to the board of directors. The proposal articulates the company’s performance history, goals, business strategy, and financial forecasts. Management advocates for public market entry, leading to the board’s decisive response post deliberation.
2. Assemble your Dream Team
Upon approval, assembling the IPO-oriented team is paramount, commencing with hiring a securities lawyer and an accounting firm.
3. Review and Restate Financials
The financial statements from the preceding five years undergo rigorous review and necessary restatement to align with Generally Accepted Accounting Principles (GAAP). Transactions permissible in private companies, like certain sale-leaseback agreements, are adjusted or excluded. This phase is spearheaded by the accounting firm.
4. Formalize Investment Bank Commitment
Selecting an investment bank leads to issuing a formalized letter of intent outlining fees, offering size, price ranges, and other critical parameters.
5. Draft the All-Important Prospectus
Armed with a letter of intent, the securities lawyers and accountants create the prospectus. This fundamental document, designed for investor appeal and legal disclosure, encompasses:
- Business Description
- Management Structure Outline
- Management Compensation Details
- Disclosure of Company-Management Transactions
- Principal Shareholders and Shareholdings
- Audited Financial Statements
- Company Operations and Financial Condition Discussion
- Planned Utilization of Proceeds
- Effect of Share Dilution
- Company Dividend Policy
- Company Capitalization Explanation
- Underwriting Agreement Description
6. Conduct Thorough Due Diligence
Investment banks and accountants perform exhaustive examination of management, operations, financial health, competitive stance, performance, and business objectives. Reviews extend to labor force, suppliers, customers, and industry landscape, necessitating prospectus updates.
7. File the Preliminary Prospectus
Submit the preliminary prospectus to the SEC and relevant market regulators. Furthermore, state securities commissions may also need to sign off. The SEC generally responds with additional disclosure requirements.
8. Form the Syndicate
Upon preliminary prospectus submission, the investment bank builds a syndicate of other banks to assist in selling the offering to investors, refining the share price range in the process.
9. Embark on the Roadshow
Management and investment bankers convene a roadshow—formal presentations delivering insights on financial performance, operations, markets, and product/services to potential investors and analysts who, in turn, pose critical questions.
10. Finalize the Prospectus
The prospectus is thoroughly revised in accordance with SEC comments. A declaration of registration effectiveness by the SEC signals the readiness for final print.
11. Determine the Offer Price
Just a day before the sales commence, the offering is priced. The investment banker advises on the price considering company performance, competitor pricing, roadshow feedback, and prevailing market conditions. Size recommendations align with capital needs, investor appetite, and corporate control.
12. Print and Publish
Professional financial printers, adept in SEC regulations and with sufficient capacity, process the final prospectus swiftly for printing and distribution.
Related Terms: Stock Market, Private Company, Investment Banking, Shareholder, Financial Reporting.
References
- PricewaterhouseCoopers. “Roadmap for an IPO: A Guide To Going Public”, Page 42.
- PricewaterhouseCoopers. “Roadmap for an IPO: A Guide To Going Public”, Page 16.
- U.S. Securities and Exchange Commission. “Form S-1”, Page 1.
- Financial Accounting Foundation. “GAAP and Private Companies”.
- Nasdaq. “Letter of Intent”.
- U.S. Securities and Exchange Commission. “Updated Investor Bulletin: Investing in an IPO”.
- U.S. Securities and Exchange Commission. “Registration Under the Securities Act of 1933”.
- U.S. Securities and Exchange Commission. “Filing Review Process”.
- U.S. Securities and Exchange Commission. “Form S-1: Registration Statement Under the Securities Act of 1933”, Page 2.
- U.S. Securities and Exchange Commission. “Information Available to Investment Company Shareholders”.
- PricewaterhouseCoopers. “Roadmap for an IPO: A Guide To Going Public”, Page 14.
- PricewaterhouseCoopers. “Roadmap for an IPO: A Guide To Going Public”, Page 14.
- PricewaterhouseCoopers. “Roadmap for an IPO: A Guide To Going Public”, Page 45.
