Going Public
Going public is the process of initial placement of the company's shares on the stock market. In an IPO, the company issues shares and allocates them on the stock exchange for the first time. After that any investor can purchase securities. Another term that is widely used to identify the “going public” process is an initial public offering (IPO).
Process of Going Public
When an organization decides to go public, it allows investors to buy securities and get profit on the further rise in the price of its shares. The process of going public is connected with a lot of difficulties and should be carried out by well-educated and highly-skilled specialists. An experienced securities lawyer should get together with the team to achieve good results.
The mandatory SEC S-1 filing doesn’t always contain information about the monetary transitions of an organization. That’s why it’s necessary to revise more facts before applying for an IPO.
Requirements for Going Public
In order to participate in an IPO, you should be aware of the following steps.
Get approval of the board. The process of going public begins when the board of directors receives a clear proposal about it. It contains information about the firm’s performance, goals, business plan, etc. After that the management encourages the board to go public by offering stocks to the general public. The board of directors should give a conclusion whether to go public or not after weighing up all the pros and cons.
Build a team. If the board approves it, the management should be ready to build a team for an IPO that generally consists of a lawyer that specializes in securities laws and an accounting firm.
Review and calculate financial statistics one more time. Going public is a complicated process and in order to get into the stock markets, a company must prepare high quality reports with clear information from the past five years. It should be restated to meet standards of Generally Accepted Accounting Principles (GAAP). Some transactions that fit private companies well should be removed. The accounting firm is responsible for financials for making adjustments to an organization’s financials.
Write a letter of intent. At this stage an organization chooses an investment bank and writes a letter of intent to make a relationship with it official. Besides, it is used to clarify terms of an agreement.
Prepare draft prospectus. After the previous document is signed, lawyers and accountants make up the prospectus. This is the official document that is prepared by the issuer before going public and contains essential information about the organization and parameters of the distribution. The main purpose of drawing up the draft prospectus is to provide potential investors with complete and reliable information. Relying on these details, they can make an investment decision. The draft prospectus consists of information about the company and its financing and operating activities, organizational structure, incentives and benefits of the management, transactions conducted between the organization and management, list of shareholders and their holding of shares, restated financials, details about the distribution of securities, information about the agreement signed between the company and the underwriters when going public.
Conduct due diligence. This is the procedure conducted by the investment bank and accountants. At this stage they look carefully at the management of the organization, business plan, analyze financial operations, organizational performance, and goals. In addition to this, they look through the list of companies that provide business with goods or services and their customers. It may happen that the results of this procedure influence the final version of the prospectus.
Present preliminary prospectus. It doesn’t disclose the number of securities to be issued or the price of shares. It should be introduced to the SEC and the stock market regulators. SEC may notify in writing the issuer that the preliminary prospectus should be revised or expanded. Such notifications must be responded to immediately, otherwise the registration may be delayed.
Syndication. After the preliminary prospectus has been presented to the commission, the investment bank begins to assemble a "syndicate" of other investment banks. Generally, it gives important information for limiting the value of the shares.
Conduct a roadshow. During the roadshow businessmen hold personal meetings with investors and big clients. It’s not only a series of presentations before attracting investments, but also a constant dialogue between the company and its existing and potential investors. The management of the company discloses information about the performance, new products and builds a favorable image of the company. At the end of the presentation they tend to answer questions from the audience.
Prepare the final version of the prospectus. It should be improved and all the notes of the SEC should be taken into consideration. When the commission approves it, an organization is allowed to "go to print" with it.
Determine the offer. One day before going public (before the stocks begin to trade), the offering is priced. The investment banker will suggest an organization the best price based on its performance and other factors.
Send the prospectus to the press. Printing is done by a financial printer.
