There are several advantages of taking a company public. The capital your company raises in a successful initial public offering (IPO) can directly increase your company’s growth and development into new markets. The IPO process is complex and requires skilled professionals to ensure its success. Read on to learn more about how an IPO really works and the team you need to successfully pull it off.
Determine the Right Time to Go Public
There are several timing factors you should take into consideration when planning to take your company public. To start, you should review your company’s annual profit and loss statements to determine if your company has growth potential in going public. If market conditions have restricted the growth of your company throughout the past fiscal year, you may want to rethink going public. In addition to reviewing your annual profit and loss statement, make sure your company researches the market, consult with experts, and determine where your company may be headed financially before going public. It is wise to have a solid plan in place of your company’s financial needs and wants prior to taking it public.
Scout Out the Best Underwriters to Use
An IPO underwriter is usually an investment bank. The underwriter is tasked with ensuring that your company meets all regulatory requirements (example – complying with the Securities and Exchange Commissions IPO regulations) and providing your company’s financial information to the public. In addition, the underwriter will contact prospective buyers of stock (example – mutual fund companies). The underwriter will negotiate with the prospective buyers and value the initial shares to be sold accordingly.
If you are considering taking your company public, you should meet with several experienced underwriters months before doing so. This will help you determine whether going public is in your company’s best interest.
Securities & Exchange Commission Prospectus
Your underwriter will put together a registration statement (legal document) to file with the SEC. The registration statement contains information about the IPO, financial statements, legal issues, and insider holdings. The SEC will review the documents and investigate any potential issues. Upon the conclusion of the investigation, the SEC will approve the offering (prospectus) if everything is in compliance with industry regulations. An effective date will be set for the stock to be sold to the public.
Market the IPO
Your company’s marketing team will be tasked with marketing the IPO. You should work with investment consultants to convince potential investors to buy stock in your company. Most companies will go on a “road show” and distribute their prospectus with potential investors. The prospectus contains information about the amount of stock to be released and the preliminary price.
List Your Company’s Stock On the Right Exchange
You can work with your company’s underwriters and financial experts to determine the best exchange to list the stock on. Each exchange has specific requirements for listing stock. For example, a company will have to meet specific financial criteria in order to be listed on the New York Stock Exchange.
It’s important that you select the right team of professionals to put your company’s IPO plan together. Hire financial experts who are highly experienced in complying with complex accounting requirements for stock exchanges. For example, your accountants and investment banker should have experience helping companies go public. Your attorney should be able to anticipate the questions the SEC may pose in response to your registration statement. Contact me for more information on how an IPO really works.