What is the IPO Process?

If a business owner plans to hold an initial public offering in two or three years, it means that the  company needs to start preparing for a future deal right now. How best to prepare a company for entering the financial market and what mistakes it is better to avoid in doing so? Read more in this article.

What is IPO?

The main alternative to credit resources is the attraction of equity investors, the most discussed form of which is the public offering of own securities (the so-called IPO), since it provides additional opportunities and benefits, such as the implementation of an objective market assessment of the company and its refinancing. The attracted financing makes it possible to significantly expand the business, attract reliable strategic investors, promote your name, and also increase your reputation. These actions make it possible to maximize the company’s capitalization, attract significant long-term investments, increase the liquidity of the company’s shares, which in general provides indisputable competitive advantages.

One of the goals of entering the public securities market is to gain access to relatively cheap capital for further development, both during the issuance process and in further fundraising. In addition, an IPO is attractive in that it stimulates the creation of a market for one’s shares by expanding the investor base.

Companies that place their securities on the stock exchange receive some additional advantages over their competitors. In particular, public companies improve their image through continuous coverage of their activities in the press and analytical reports. In addition, companies increase their status and investment attractiveness, both in front of customers and suppliers, who are convinced of the reliability of the company.

How to organize IPO?

IPO is a multi-step process that covers:

  • collection of necessary financial data, marketing information, and information about the company’s activities;
  • conducting a financial and legal audit of the financial and economic activities of the company (due diligence);
  • preparation of a prospectus and its approval by regulators; and, finally, a marketing campaign and an offer of shares for sale during the roadshow.
  • This process ends with the sale of all shares offered under this offering and the receipt by the company and/or its shareholders of proceeds from the IPO.

The first step in conducting an IPO is organizing a meeting with all participants. The meeting should be attended by all members of the working group involved in the IPO: company management, independent auditors, underwriters, as well as legal advisers to the company and underwriters. The purpose of this first organizational meeting is to discuss the nature of the placement, coordinate the preparation of various sections of the prospectus, determine the timing of the transaction, and exchange information on the time that members of the working group can devote to the project

The preparation of documents relating to the offer of securities is a rather complex process from a technical point of view, requiring a lot of time and significant efforts in planning and coordination of actions. Thus, most companies use a virtual data room that provides a warehouse for business-critical documents and other useful tools for productive real-time collaboration.

If a company is about to go public, an IPO due diligence must be carried out. The focus of the audit is on determining whether the company is ready for the stock market. Due diligence is an examination process in which strengths, weaknesses, opportunities, and risks are analyzed with regard to economic, legal, tax, and financial conditions. The aim is to uncover all potential risks that may arise in connection with a business relationship.