What Is Going Public?
Going public involves selling previously privately owned shares to new investors through an initial public offering (IPO).
Going Public Works
The first time the public may acquire shares is when a corporation “goes public.” Going public requires a skilled team to navigate its hurdles. An expert securities lawyer is vital to the team. The team must work together to guide the firm through the IPO process.
Do your homework before investing in an IPO because the obligatory SEC S-1 filing may not include all financial information.
Going Public Requirements
1. Board Approval
Go public begins with management proposing to the board of directors. The proposal discusses the company’s history, goals, business plan, and finances. Management proposes public market entry. The directors determine whether to proceed after a thorough review.
2. Gather Team
After approval, management assembles the IPO team, starting with a securities lawyer and accounting firm.
3. Recap Financials
Following approval, the company’s financial statements over the last five years are examined and adjusted to meet GAAP standards. Private corporations can remove some transactions, such as sale-leaseback contracts, and amend their financial statements appropriately. The accounting company leads evaluation and adjustment.
4. Investment Bank Letter of Intent
After choosing an investment bank, the firm issues a letter of intent to establish the connection and specifies fees, size, price ranges, and other characteristics.
5. Prospectus draft
After receiving a signed letter of intent, securities attorneys and accountants create the prospectus. Investors receive a prospectus as a sales pitch and legal disclosure. A prospectus needs:
- Business description
- Explaining managerial structure
- Management pay disclosure
- Disclosure of company-management dealings
- Principal shareholders and their firm holdings
- Financial statements audited
- Company operations and finances
- Information on offering funds and usage
- How dilution affects existing shares
- Company dividend policy breakdown
- Company capitalization description
- Underwriting agreement description
6. Carefulness
The company’s investment bank and accountants will evaluate management, operations, finances, competitive position, performance, and corporate goals and strategy. They examine the company’s workforce, suppliers, customers, and industry. Due diligence investigations may need prospectus modifications.
7. Prospectus preliminary
Present a preliminary prospectus to the SEC and stock market regulators. State securities commissioners may also approve. SEC comments on prospectuses frequently request more disclosure or explanation.
8. Syndication
The investment bank should form a “syndicate” of investment banks to sell sections of the offering to investors after filing the preliminary prospectus with the SEC. Syndicate assembly typically yields essential information that narrows share prices.
9. Roadshow
Management and investment bankers engage with investors and analysts often. Management presents a formal roadshow on the company’s financial position, operations, performance, markets, and products or services. Potential investors and analysts ask corporate questions.
10. Prospectus completion
Rewrite the prospectus based on SEC feedback. When the SEC approves registration, the corporation may “go to print” with the prospectus.
11. Offer Determination
Pricing occurs the day before registration and sales begin. The investment banker will suggest a price for the company’s approval based on performance, competitive offerings, roadshow results, and market and industry circumstances. The investment banker will propose the offering size based on funds needed, investor demand, and corporate control.
12. Print.
A professional financial printer with enough printing capacity and knowledge of SEC visual rules receives the completed prospectus for accelerated printing.
Conclusion
- A firm going public requires various delicate processes to protect the company and investors.
- The draft prospectus for the IPO will include several aspects of the firm. During vetting, this document will evolve.
- Before presenting a roadshow to investors, the company’s initial investment bank will form a syndicate.
- A professional financial printer knowledgeable of SEC requirements prints the final SEC-approved prospectus.
- The investment banker sets the offering price the day before registration, depending on numerous considerations.
