The process of a company embarking on an initial public offering, or IPO, where their shares will become available for public trading over an exchange for the first time is not a simple or quick process.
The company will need to appoint an investment bank to assist them with this process, and this role will typically be carried out by the equity capital markets or ECM desk within an investment bank.
The first stage of the process is to appoint an investment bank to carry out their own valuation of the company seeking an IPO.
This valuation will typically identify a range within which the ECM bankers think that there might be sufficient demand from potential investors for the company to be able to sell all of the shares it hopes to sell through the IPO.
This does not determine the final price of the IPO, but provide some indication to the company's management about the amount of capital that they're likely to raise.
The investment bank will also provide advice on other features of the company, which may need to be addressed for a successful IPO, for example, the appropriate level of experience and expertise of the company's board of directors in relation to running a public company.
The next stage of the process is referred to as due diligence and involves the company providing all necessary information about itself to its advisors so they can adequately fulfill their own obligations to the company as well as to potential investors. In the IPO, this information would include legal, financial, commercial, HR, and IT related content, allowing the advisors who will include legal and accountancy firms to provide advice to the company on any improvements that need to be made prior to the IPO to meet any legal or regulatory requirements or to improve the likelihood of the IP O'S success.
The same group of advisors will then help the company to prepare a prospectus, which acts as a marketing document for the potential investors.
In the IPO, there are also many regulatory requirements of information that must be included within the prospectus.
Since much more information must be made publicly available by listed companies about themselves, and this document acts as part of the transition of a private company, increasing the amount of disclosure that it needs to make once it's become publicly traded.
Next, an application must be made to the relevant exchange to ensure the company has met with all of the listing requirements to the satisfaction of the exchange in which the company shares will be listed.
Once approval from the exchange is received, the company will produce a presentation to be used in speaking to potential investors who may be interested in purchasing shares through the IPO.
At the pre-marketing stage, the bank will be sounding out key institutional clients of the bank, such as asset management firms and insurance companies to gauge their level of interest in the IPO having potentially made tweaks to the number of shares or the guide price range, the investment bank will then embark on a roadshow where they will speak to many more potential institutional investors to market the company and to begin the process of book building.
This process involves gathering indicative demand levels At different potential IPO prices.
When this is compiled across a wide number of institutional investors, the investment bank will begin to build a picture of the price level at which there'll be sufficient demand to sell all the desired shares through the IPO.
This stage of the process will typically involve the sales team within the investment bank who hold the relationships with those institutional investors.
Finally, on the morning of the IPO, the investment bank and the issuing company will set the price at which they wish to sell those shares through the IPO, and investors will be invited to make offers to purchase shares at that set price.
Once trading starts, the company's shares will be listed and be available for trading between investors over the exchange.
The investment bank may be involved in providing ongoing support to the company's shares through such activities as price stabilization.
Equity Financing Options Slides
